ACCA Strategic Professional · Advanced Taxation (UK)

Corporation tax: chargeable gains for companies: formula sheet

Full chapter guide

Key formulas

Chargeable gain layout: Net proceeds − allowable costs = unindexed gain; unindexed gain − indexation allowance = chargeable gain; Net proceeds are proceeds (or market value if applicable) less incidental costs of disposal.
Indexation factor: (RPI at disposal month − RPI at acquisition month) ÷ RPI at acquisition month; Round to three decimals. For disposals after 2017, use December 2017 as the end month. Assets acquired after that date get no indexation. Factors are normally given in the question.
Indexation allowance: Cost (or enhancement) × indexation factor, for each item of cost; Restricted so it cannot create or increase a loss. It is capped at the unindexed gain.
Tax on gains: Gain is included in taxable total profits and charged at 19% (small profits rate), 25% (main rate) or with marginal relief; Limits are £50,000 and £250,000, divided by the number of associated companies plus one. Adjust for short accounting periods. Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
No annual exempt amount: Companies: no annual exempt amount and no CGT rates; The £3,000 annual exempt amount and the 18% and 24% rates apply to individuals, not companies.
Effect of SSE: Gain on disposal = exempt; loss on disposal = not allowable; Applies automatically when all conditions are met. There is no claim and no election to disapply it.
Investing company (seller) condition: Since 1 April 2017 the investing company need not be a trading company or a member of a trading group; The seller's own trading status is no longer a condition. Do not test it. The trading test now applies to the investee.
Holding condition: Holding of at least 10% of ordinary share capital, with matching entitlement to profits and assets on a winding up, for a continuous 12 months in the 6 years before the disposal; The 12 months need not be immediately before the sale. Holdings can be counted across group members.
Investee company condition: Investee must be a trading company or the holding company of a trading group or subgroup, throughout the 12-month holding period and immediately after the disposal; Non-trading activities must not be substantial (commonly taken as more than 20% of activities). A property investment or investment holding company will not qualify.
Where SSE fails: Gain = disposal proceeds − allowable cost (pool) − indexation allowance (frozen at December 2017); taxed in total profits at the corporation tax rate; Indexation allowance is frozen at December 2017. It is only available on assets held at that date, and only for the period up to December 2017. Use the normal company share pooling and matching rules. Losses are then allowable against chargeable gains.
Matching order for companies: 1. Same day → 2. Previous 9 days (earliest first) → 3. Section 104 pool; The nine-day rule looks back from the disposal date only. There is no 30-day forward rule for companies.
Indexed pool, adding shares: New indexed cost = indexed cost b/f + indexation to date of purchase + cost of new shares; Do this at every acquisition up to December 2017. After that, add new shares at cost only.
Pool disposal proportion: Cost removed = pool cost × shares sold ÷ shares in pool; indexed cost removed = indexed pool × shares sold ÷ shares in pool; Use the pool as it stands immediately before the disposal.
Gain on a matched block: Gain = proceeds − allowable cost − indexation allowance; Indexation allowance = indexed cost − cost. It cannot create or increase a loss.
Indexation freeze: Indexation allowance is calculated only up to December 2017; A disposal in 2025/26 gets no extra indexation after that date.
Time window for reinvestment: From 12 months before the disposal to 3 years after the disposal; The new qualifying asset must be acquired within this period. Count from the date of disposal.
Gain chargeable now (partial reinvestment): Chargeable now = lesser of (gain) and (proceeds − amount reinvested); If all proceeds are reinvested, nothing is chargeable now. Only proceeds count, not cost.
Gain rolled over: Rolled-over gain = total gain − gain chargeable now; This is the amount deferred.
Base cost of the new asset: New base cost = cost of new asset − rolled-over gain; Applies to non-depreciating assets such as land and buildings.
Depreciating asset: Gain held over until the earliest of: sale of the asset, it ceasing to be used in the trade, or 10 years after acquisition; Base cost of the new asset is not reduced. The held-over gain can be moved to a non-depreciating asset.
Qualifying conditions: Old and new assets both qualifying classes AND both used in the trade AND proceeds reinvested in the window AND claim made; Missing any one condition means no relief, or only partial relief.
Claim deadline: Within 4 years of the end of the later accounting period of the disposal and the acquisition; A company can also make a provisional claim if it intends to reinvest.
Capital loss use against gains: Capital losses can only be set against chargeable gains; Never against trading profits, property income or other income. Companies have no annual exempt amount.
Order of set-off: Current-year gains − current-year losses − brought forward losses = net chargeable gain; Current-year losses are used first and in full. Brought forward losses cover only the remaining gain, and unused losses carry forward without time limit.
Net current-year loss: If current-year losses > current-year gains, excess is carried forward; Brought forward losses are not used in that period.
Deductions allowance restriction: Brought forward losses covering profits above the allowance are limited to 50% of those profits; Applies to carried forward losses only, not current-year losses. The allowance is shared across a group. Use the figure given in the exam question.
Gains group test: Principal company and 75% subsidiaries; indirect subsidiaries need an effective interest above 50%; Used for no gain, no loss transfers and for the joint election. This is separate from the group relief test for income losses.
Intra-group transfer: Transfer at no gain, no loss (TCGA 1992 s171); Deferral only. The gain or loss is realised when the asset leaves the group, or on degrouping.
Joint election to transfer gain or loss: Election by both companies within two years of the end of the accounting period of the disposal; The gain or loss is treated as arising in the other company. Use it to match a loss with a gain, or to use the lower tax rate or marginal relief band.
Corporation tax rates: Small profits rate 19% (profits ≤ £50,000); main rate 25% (profits > £250,000); marginal relief between; Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. Limits are divided by the number of associated companies (1 + number of associates) and reduced for short periods.
Capital gains group test: Parent owns at least 75% of ordinary share capital (directly or indirectly); effective interest in indirect subsidiaries must be more than 50%; Test both the direct holding and the effective interest. A 75% subsidiary of a 75% subsidiary is in the group only if the parent's effective interest is more than 50%.
Intra-group transfer: Deemed proceeds = transferor's cost (plus any frozen indexation only for pre-2018 holdings) → no gain, no loss; The transferee takes the transferor's original cost. Indexation allowance was frozen at December 2017, so none is added up to the date of transfer. Tax is deferred until the asset leaves the group.
Degrouping charge: Market value at the time of the original no gain no loss transfer − original cost (as for the transferor) = degrouping gain or loss; Applies when the transferee leaves the group within six years of the transfer while still holding the asset. The company is treated as having sold and immediately reacquired the asset at market value at the time of the original no gain no loss acquisition.
Where the charge is added: Share disposal proceeds ± degrouping gain/loss = adjusted proceeds; Where the leaving company, or its parent, is sold by a vendor group company, the charge is included in the computation of the gain on the shares sold. In other cases it is dealt with as a gain or loss of the leaving company.
Reallocation election: Joint election (s171A) to treat the whole or part of a gain or loss accruing to one group company on a disposal outside the group as accruing to another group company; Used to match gains with capital losses. It must be made jointly within two years after the end of the accounting period of the company that made the disposal.

Quick revision

A company pays corporation tax on its chargeable gains, not capital gains tax.
Gains are added to other profits to give taxable total profits.
Corporation tax rates in the tables: small profits rate 19%, main rate 25%, with marginal relief between £50,000 and £250,000.
Marginal relief = (upper limit – augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
Indexation allowance is frozen at December 2017.
Check substantial shareholding exemption conditions before computing any share gain.
Share pools are built from acquisitions; match disposals using the company rules, then compute the gain.
Rollover relief defers the gain by reducing the cost of the replacement asset, subject to its conditions and time limits.
Capital losses are set against gains, not against income profits.
Group transfers of assets are normally at no gain, no loss, but a degrouping charge can arise when a company leaves.
Always show workings and state the rule you are applying.
Finish advice with a clear recommendation tied to the client's facts.

Common mistakes

Letting indexation turn a gain into a loss or increase a loss. Fix: Always compute the unindexed gain first. Cap indexation at that figure. If there is a loss, give no indexation.
Giving indexation on inflation after December 2017. Fix: Use December 2017 as the end month for disposals after that date. Give no indexation for assets bought after December 2017.
Treating SSE as a relief that must be claimed Fix: State that SSE applies automatically when the conditions are met and cannot be disapplied.
Forgetting that losses are not allowable under SSE Fix: Always write both effects: gain exempt, loss not allowable. If a loss is expected, consider whether SSE applies.
Applying a 30-day forward rule to a company. Fix: For companies, look back nine days from the disposal. Acquisitions after the disposal go to the pool.
Putting shares bought in the nine-day window into the pool. Fix: Count the days between purchase and sale first. Use the earliest purchase first if there are several in the window.
Taxing the gain by reference to the amount not reinvested out of cost rather than out of proceeds. Fix: Always compare the proceeds with the amount spent on the new asset. The unspent proceeds are the most that can be chargeable now.
Charging the full unspent proceeds even when they exceed the gain. Fix: Cap the chargeable amount at the gain. You can never be taxed on more than the gain through this rule.
Setting a capital loss against trading profit or other income Fix: Write at the start: capital losses only against chargeable gains.
Using brought forward losses before current-year losses, or choosing to leave some gain uncovered Fix: Current-year losses go first and in full. Then use brought forward losses on the remaining gain.

Exam tips

Show the layout in full: proceeds, costs, unindexed gain, indexation, gain. Method marks are given for each line, even if a factor is wrong.
Use the indexation factors in the question. Do not try to compute them from RPI unless RPI figures are given. Note the December 2017 freeze in your working.
State clearly that companies do not get the annual exempt amount and are not taxed at CGT rates. Examiners expect the contrast with individuals.
Always finish the tax step. Check the profit limits, associated companies, short periods and marginal relief, and give the tax on the gain.
In Section A scenarios, link the gain to wider advice. Examples are rollover relief, substantial shareholding exemption or timing of the disposal.
Write the tests in a list and tick them off with the dates from the question. This earns method marks even if you misjudge one fact.
Check the sale date and the acquisition dates. A holding that is just short of 12 months is a classic trap, and the answer may be to delay the sale.
If a loss is likely, consider whether SSE would remove loss relief. Say so, and advise on whether the conditions can be avoided or the timing changed.