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

Delta Ltd and Epsilon Ltd are UK resident companies in the same capital gains group. Delta Ltd transfers a factory (a capital asset) to Epsilon Ltd for £500,000, when Delta Ltd's original cost was £300,000. Which treatment applies to the transfer?

The transfer is at no gain/no loss, so Epsilon Ltd takes over Delta Ltd's base cost of £300,000. The £200,000 gain is deferred until the asset is sold outside the group or Epsilon Ltd leaves the group.

  1. AThe transfer is treated as made at no gain/no loss, so Epsilon Ltd takes over Delta Ltd's base cost of £300,000, and the gain of £200,000 is deferred until Epsilon Ltd leaves the group or sells the asset outside it.Correct
  2. BDelta Ltd is taxed on a chargeable gain of £200,000 at the main rate of corporation tax, which is 25%.
  3. CDelta Ltd is taxed on a gain of £200,000 at the 24% rate of capital gains tax for companies.
  4. DDelta Ltd has no gain, and Epsilon Ltd takes a base cost of £500,000.

Explanation

Transfers of capital assets between members of a capital gains group are treated as made at no gain/no loss. Epsilon Ltd inherits the original base cost of £300,000, so the £200,000 gain stays embedded in the asset. A company pays corporation tax on gains, not capital gains tax, and the base cost is not stepped up to market value.

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