Advanced Taxation (UK) · Corporation tax: chargeable gains for companies

Chargeable Gains Groups and Degrouping Charges

Updated 11 October 2026 · Fact-checked

Within a capital gains group, companies transfer chargeable assets to each other at no gain, no loss. If the transferee company leaves the group within six years while still holding the asset, a degrouping charge arises. Where a group company sells the shares, the charge is added to the share sale proceeds. Gains and losses can also be reallocated by election.

Understand Chargeable Gains Groups and Degrouping Charges

A capital gains group lets companies move chargeable assets around without tax. The group is the principal company and its 75% subsidiaries, plus the 75% subsidiaries of those, provided the principal company has an effective interest of more than 50% in each. A subsidiary here means one where at least 75% of the ordinary share capital is held directly or indirectly. An effective interest of 50% or less breaks the chain.

The group must be tested at the time of each transfer. Non-UK resident companies can be group members, but a no gain no loss transfer is only available if the asset would be within the charge to UK tax on a gain, for example through a UK permanent establishment.

When one group company transfers a chargeable asset to another, the transfer is treated as made at no gain, no loss. Deemed proceeds equal the transferor's cost. Indexation allowance for companies was frozen at December 2017 and does not apply to current disposals. Any previously frozen indexation matters only for holdings acquired before 2018. The transferee takes over the transferor's cost. No tax arises at transfer. The gain is deferred until the asset leaves the group, when it is taxed in the company that sells it outside the group.

Groups also allow flexibility. Two group companies can make a 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. The effect is as if the asset had first been transferred to the other company on a no gain no loss basis. This covers a chargeable gain or an allowable loss. It is useful when one company has capital losses and another has gains, because the gain can be moved to the company with the loss. The election is made jointly by the two companies, and it must be made within two years after the end of the accounting period of the company that made the disposal. A related idea is rollover relief across the group: for rollover relief, all trades carried on by group members are treated as a single trade.

The degrouping charge stops tax avoidance. If a company leaves the group within six years of receiving an asset by a no gain no loss transfer, and still owns that asset when it leaves, it is treated as having sold and immediately reacquired the asset at market value at the time of the original no gain no loss acquisition. The resulting gain or loss is the degrouping charge.

When the company leaves because it, or its parent, is sold by a vendor group company, the charge is added to (or deducted from) the sale proceeds of the shares sold by that vendor. This share sale may be covered by the substantial shareholding exemption. In other cases the charge is dealt with as a gain or loss of the leaving company itself, and a joint election may be possible.

Key rules to remember

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.

How to solve Chargeable Gains Groups and Degrouping Charges questions

Use this order for any question on groups, no gain no loss transfers and degrouping. Always draw the group structure first.

1Draw the structure with percentage holdings. Work out each company's direct holding and the parent's effective interest. Decide which companies are in the capital gains group.
2Identify each transfer between group companies. If both are in the group, treat it as no gain, no loss. Write the deemed proceeds as the transferor's cost. Do not add indexation up to the transfer date, as it was frozen in 2017.
3Identify any sale to a third party. Compute the gain or loss in the selling company using the carried-over cost.
4Look for gains and losses in different group companies. Consider a joint election to reallocate the gain to the company with the loss so the loss is used in full.
5Check whether any company is leaving the group. Test the six-year window from the transfer and whether the company still holds the asset when it leaves.
6If a degrouping charge applies, compute market value at the date of the earlier transfer less original cost. Add the gain, or deduct the loss, in the share sale computation of the group company selling the shares.
7Consider whether the substantial shareholding exemption applies to the share sale. If so, the degrouping charge is also exempt.
8State the final taxable gain, the company liable and the tax effect, and note any planning point.

Quickest way: Four-question check for degrouping

When to use it: Use this when a question says a company is sold or leaves a group and asks about the tax effect.

Was an asset transferred to the leaving company by no gain no loss?
Was it within the last six years?
Does the leaving company still own the asset at the date it leaves?
If yes to all three, calculate market value at transfer less original cost. Add it to the proceeds on the share sale, then check for the substantial shareholding exemption.

Common mistakes in Chargeable Gains Groups and Degrouping Charges

Treating a company as a group member because the parent holds 75% of the intermediate company only
Students stop at the first 75% test and forget the effective interest test.
Fix: Multiply the holdings down the chain. The parent's effective interest in an indirect subsidiary must be more than 50%.
Taxing an intra-group transfer at market value
It is normal to use market value for a sale between connected persons.
Fix: In a capital gains group, deemed proceeds equal the transferor's cost, so there is no gain and no loss.
Adding the degrouping charge to the leaving company's own taxable profit when a group company is selling the shares
The charge arises on the leaving company's asset, so it looks like its gain.
Fix: Where a vendor group company sells the shares in the leaving company (or its parent), put the charge in that share sale computation. Only where no group company sells the shares is it dealt with as a gain or loss of the leaving company.
Forgetting the asset must still be held when the company leaves
Students see the six-year period and apply the charge automatically.
Fix: If the asset has already been sold outside the group, there is no degrouping charge. Check the facts first.
Ignoring the substantial shareholding exemption on the share sale
Students focus on the group rules and miss the interaction.
Fix: If the substantial shareholding exemption applies to the share sale, the degrouping charge is also exempt. Always test it at the end.

Worked examples

Example 1

P Ltd owns 100% of S Ltd. P Ltd bought land for ₹4,00,000 three years ago. It transfers the land to S Ltd when its market value is ₹7,00,000. S Ltd then sells the land outside the group for ₹9,00,000. Ignore indexation. Compute the chargeable gain and state which company it arises in.

Show the solution

P Ltd and S Ltd are in a capital gains group because P Ltd owns 100%.
The transfer is no gain, no loss. Deemed proceeds are ₹4,00,000, equal to P Ltd's cost.
S Ltd takes over a base cost of ₹4,00,000.
S Ltd sells for ₹9,00,000. Gain = ₹9,00,000 − ₹4,00,000 = ₹5,00,000.

Answer: The chargeable gain is ₹5,00,000 and it arises in S Ltd. P Ltd has no gain on the transfer. The ₹3,00,000 uplift in market value at the transfer date is taxed as part of S Ltd's gain.

Example 2

H Ltd owns 100% of J Ltd. Four years ago H Ltd transferred a building to J Ltd. H Ltd's cost was ₹6,00,000. Market value at transfer was ₹10,00,000. H Ltd now sells all its shares in J Ltd for ₹25,00,000. The base cost of the shares is ₹12,00,000. J Ltd still holds the building. Ignore indexation and the substantial shareholding exemption. Compute H Ltd's gain on the shares.

Show the solution

J Ltd left the group within six years of the transfer and still holds the building, so a degrouping charge arises.
Degrouping gain = ₹10,00,000 − ₹6,00,000 = ₹4,00,000.
Add the degrouping gain to the share proceeds: ₹25,00,000 + ₹4,00,000 = ₹29,00,000.
Deduct the share cost: ₹29,00,000 − ₹12,00,000 = ₹17,00,000.

Answer: H Ltd has a chargeable gain of ₹17,00,000 on the share sale. This includes the degrouping charge of ₹4,00,000. Without the charge, the gain would be ₹13,00,000.

Exam tips

Draw the group structure with percentages first. Marks for the 75% and effective interest tests are easy to earn.
Say the transfer is no gain, no loss and give the figure used. Do not just write 'no gain'.
When a company leaves, check the three conditions in order: six years, no gain no loss transfer, asset still held. Show each check in your answer.
If a question mentions capital losses in one company, think about a joint election to reallocate the gain.
State that the degrouping charge goes into the share sale computation, and always comment on whether the substantial shareholding exemption might remove it.

Practice questions from Corporation tax: chargeable gains for companies

Chargeable Gains Groups and Degrouping Charges in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsChargeable Gains Groups and Transfers

Chargeable Gains Groups and Degrouping Charges: frequently asked questions

What is a capital gains group for ACCA ATX-UK?

It is a parent and its 75% subsidiaries, plus indirect 75% subsidiaries where the parent's effective interest is more than 50%. Companies in the group can transfer chargeable assets at no gain, no loss.

What is a degrouping charge?

It is a gain or loss triggered when a company leaves a group within six years of receiving an asset by a no gain no loss transfer and still holds that 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 is the degrouping charge taxed?

Where the leaving company, or its parent, is sold by a vendor group company, the charge is added to or deducted from the proceeds on the sale of the shares. It is not a separate gain in that case. In other cases it is dealt with as a gain or loss of the leaving company, and a joint election may be possible.

How can I avoid a degrouping charge?

You can sell the asset outside the group before the company leaves, or transfer it back to another group company. Selling shares may also be exempt under the substantial shareholding exemption, which would remove the charge as well.