Section 278 Company ceasing to be member of a group.C12C1C2C3C4C5
United Kingdom
If a company (in this section called the chargeable company) ceases to be a member of a group of companies, this section shall have effect as respects any asset which the chargeable company acquired from another company which was at the time of acquisition a member of that group of companies, but only if the time of acquisition fell—
on or after 6th April 1965, and
within the period of six years ending with the time when the company ceases to be a member of the group;
and references in this section to a company ceasing to be a member of a group of companies do not apply to cases where a company ceases to be a member of a group F1in consequence of another member of the group ceasing to exist
Where two or more associated companies cease to be members of the group at the same time, subsection (1) above shall not have effect as respects an acquisition by one from another of those associated companies.
If, when the chargeable company ceases to be a member of the group, the chargeable company, or an associated company also leaving the group, owns, otherwise than as trading stock—
the asset, or
property to which a chargeable gain has been carried forward from the asset on a replacement of business assets,
(C7)the chargeable company shall be treated for all the purposes of F2the Capital Gains Tax Act 1979 as if immediately after its acquisition of the asset it had sold, and immediately reacquired, the asset at market value at that time.
Where, apart from subsection (3C) below, a company ceasing to be a member of a group by reason only of the fact that the principal company of the group becomes a member of another group would be treated by virtue of subsection (3) above as selling an asset at any time, subsections (3C) to (3E) below shall apply.
The company in question shall not be treated as selling the asset at that time; but if—
within six years of that time the company in question ceases at any time (“the relevant time") to satisfy the following conditions, and
at the relevant time, the company in question, or a company in the same group as that company, owns otherwise than as trading stock the asset or property to which a chargeable gain has been carried forward from the asset on a replacement of business assets,
the company in question shall be treated for all the purposes of the Capital Gains Tax Act 1979 as if, immediately after its acquisition of the asset, it had sold and immediately reacquired the asset at the value that, at the time of acquisition, was its market value.
Those conditions are—
that the company is a 75 per cent. subsidiary of one or more members of the other group referred to in subsection (3B) above, and
that the company is an effective 51 per cent subsidiary of one or more of those members.
Where—
by virtue of this section a company is treated as having sold an asset at any time, and
if at that time the company had in fact sold the asset at market value at that time, then, by virtue of section 26 of that Act, any allowable loss or chargeable gain accruing on the disposal would have been calculated as if the consideration for the disposal were increased by an amount,
subsections (3) and (3C) above shall have effect as if the market value at that time had been that amount greater.
For the purposes of this section—
two or more companies are associated companies if, by themselves, they would form a group of companies,
a chargeable gain is carried forward from an asset to other property on a replacement of business assets if, by one or more claims under F4sections 115 to 121 of the CapitalGains Tax Act 1979, the chargeable gain accruing on a disposal of the asset is reduced, and as a result an amount falls to be deducted from the expenditure allowable in computing a gain accruing on the disposal of the other property,
an asset acquired by the chargeable company shall be treated as the same as an asset owned at a later time by that company or an associated company if the value of the second asset is derived in whole or in part from the first asset, and in particular where the second asset is a freehold, and the first asset was a leasehold and the lessee has acquired the reversion.
If any of the corporation tax assessed on a company in consequence of this section is not paid within six months from the date when it becomes payable then—
a company which on the said date, or immediately after the chargeable company ceased to be a member of the group, was the principal company of the group, and
a company which owned the asset on the said date, or when the chargeable company ceased to be a member of the group,
may at any time within two years from the time when the tax became payable, be assessed and charged (in the name of the chargeable company) to all or any part of that tax; and a company paying any amount of tax under this subsection shall be entitled to recover a sum of that amount from the chargeable company.
The date referred to in subsection (5) above is whichever is the later of—
the date when the tax becomes due and payable by the company; and
the date when the assessment was made on the chargeable company.
Notwithstanding any limitation on the time for making assessments, an assessment to corporation tax chargeable in consequence of this section may be made at any time within six years from the time when the chargeable company ceased to be a member of the group, and where under this section the chargeable company is to be treated as having disposed of, and reacquired, an asset, all such recomputations of liability in respect of other disposals, and all such adjustments of tax, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of the provisions of this section shall be carried out.
The provision in subsection (3) above making the assumption that an asset is sold and re-acquired at market value shall, in accordance with paragraph 7(1) of Schedule 14 to the M1Finance Act 1967, have effect subject to the provisions of section 33 of that Act (current use value of land in Great Britain).
This section has effect, to the exclusion of the corresponding enactments repealed by this Act, where the chargeable company ceases to be a member of the group in an accounting period ending after 5th April 1970, and not only in respect of tax for such an accounting period but also in respect of tax for accounting periods ending on or before that date.
Annotations
Textual amendments
- F1
Words in s. 278(1) substituted(retrosp.) by Finance (No. 2) Act 1992 (c. 48), s. 25(2), and the substitution shall have effect, and be deemed to have had effect, in relation to a company which ceases to be a member of a group of companies on or after 15.11.1991.
- F2
Words substituted by Capital Gains Tax Act 1979 (c. 14, SIF 63:2), s. 157(2), Sch. 7 para. 8 for 1979-80 et seq.
- F3
S. 278(3B)–(3F) inserted by Finance Act 1989 (c. 26), s. 138(5) from March 14th 1989 subject to s. 138(10)(11).
- F4
Words substituted by Capital Gains Tax Act 1979 (c. 14, SIF 63:2), s. 157(2), Sch. 7 para. 9 for 1979-80 et seq.
- F5
S. 278(5A): see Finance (No. 2) Act 1987 (c. 51), s. 95(4), Sch. 6 para. 4 for changes where the accounting period in which the Chargeable company ceases to be a member of the group ends after a day to be appointed.
Marginal citations
- M1
Modifications
- C1
See Finance Act 1973 (c. 51), s. 38(5)— application of ss. 278 to 279 in relation to certain disposals by non-resident companies of offshore exploration or exploitation rights; Capital Gains Tax Act 1979 (c. 14, SIF 63:2), s. 16, ss. 278 and 279 to apply to non-resident group of companies and Finance Act 1980 (c. 48), s. 117, Sch. 18 paras. 10, 15— application of ss. 278, 279 to exempt distributions and chargeable payments.
- C2
See Finance Act 1982 (c. 39), s. 146 non-application of s. 278 as respects severance of a subsidiary company from British National Oil Corporation group on or after April 6th 1982. S. 146 was repealed by the Oil and Pipelines Act 1985 (c. 62), s. 7(4), Sch. 4 Pt. I from December 1st 1985; Finance Act 1982 (c. 39), s. 147, non-application of s. 278 as respects severance of a subsidiary company from British Gas Corporation. S. 147 is being repealed by the Gas Act 1986 (c. 44), Sch. 9 Pt. II on and after August 24th 1986— commencement order S.I. 1986 No. 1318, and Finance Act 1988 (c. 39, SIF 63:1, 2), Sch. 12 para. 4— change of status of building societies.
- C3
See Trustee Savings Banks Act 1985 (c. 58), s. 5, Sch. 2 para. 4(2), application of s. 278 where a 75 per cent. subsidiary of an existing bank becomes a 75 per. cent subsidiary of the bank's successor under the Trustee Savings Banks Act 1985; Transport Act 1985 (c. 67), s. 130(4), non-application of s. 278 to the assets of a company on its ceasing to be a 75 per cent. subsidiary (within the meaning of the Transport Act) of the Executive where the company was owned by a Passenger Transport Executive under the Transport Act 1985, s. 59 and its shares or securities were subsequently transferred to a Passenger Transport Authority, and Electricity Act 1989 (c. 29), s. 90, Sch. 11 para. 2 of the application of s. 278 to a successor company on privatisation (in force on March 31st 1990 by virtue of S.I. 1990 No. 117 (C. 4)).
- C4
S. 278 excluded by Ports Act 1991 (c. 52, SIF 58), s. 35(6)(7)
- C5
Ss. 272-281: definition of "effective 51 percent. subsidiary" applied (E.W.S.) by Ports Act 1991 (c. 52, SIF 58), s. 17(13)
- C6
See Finance Act 1988 (c. 39, SIF 63:1, 2), Sch. 9 paras. 3, 8, deferred charges on gains before March 31st 1982.
- C7
See Finance (No. 2) Act 1987 (c. 51), s. 95(4), Sch. 6 para. 4(2). See Sch. 6 para. 4(2) for wording to be inserted where the accounting period in which the chargeable company ceases to be a member of the group ends after a day to be appointed.
- C8
S. 278(3A): see Finance (No. 2) Act 1987 (c. 51), s. 95(4), Sch. 6 para. 4(2). See Sch. 6 para. 4(2) for wording to be inserted where the accounting period in which the chargeable company ceases to be a member of the group ends after a day to be appointed.
- C9
See Finance Act 1989 (c. 26), s. 138(7). S. 278(3E) will have effect where the accounting period in which the company referred to in subs. (3B) ceases to be a member of a group ends after the day appointed under Finance (No. 2) Act 1987 (c. 51), s. 95(4), Sch. 6 para. 4 (not earlier than March 31st 1992).
- C10
See Finance (No. 2) Act 1987 (c. 51), s. 95(4), Sch. 6 para. 4 for changes where the accounting period in which the Chargeable company ceases to be a member of the group ends after a day to be appointed.
- C11
See Finance Act 1974 (c. 30), s. 47, Sch. 10 para. 1, s. 277 applied in relation to development gains and tax in respect thereof.
- C12
See Finance Act 1973 (c. 51), s. 38(5), application of ss. 273 to 275 and 278 to 279 in relation to certain disposals by non-resident companies of offshore exploration or exploitation rights.
Notes on the whole Act
Textual amendments
- F1
Act repealed (in relation to Tax for the year 1992/93 and subsequent years as mentioned in s. 289 of the repealing Act) by Taxation of Chargeable Gains Act 1992 (c. 12), s. 290(3), Sch. 11 para. 24(1), Sch.12 (with savings in ss. 201(3), 290, Sch. 11 paras. 22, 26(2), 27), subject to applications, powers and amendments in the following enactments: Social Security Contributions and Benefits Act 1992 (c. 4), s. 16(1)(3), Sch. 2; Social Security (Consequential Provisions) Act 1992 (c. 6), s. 5, Sch. 3 Pt. II para. 15; Taxation of Chargeable Gains Act 1992 (c. 12), ss. 1(2), 209(3); Finance (No. 2) Act 1992, ss. 24, 49(2)(3)(a)(b)(4)(9), 77, Sch. 6 paras.4, 9, Sch. 17 paras. 6(3)(6), 7; S.I. 1992/58, arts. 9, 11(3),33, Sch. 2 para.1, S.I. 1992/1725, art. 107, Sch. 8 para.2; S.I. 1995/171, reg. 4(2)(a); S.I. 1995/1916, reg. 4; 1994 c. 9, s. 258, Sch. 26 Pt. V
Notes on Part XI
Modifications
- C1
See Income and Corporation Taxes Act 1988 (c. 1, SIF:63:1), ss. 114–116— special rules for partnerships involving companies.
Notes on Chapter I
Modifications
- C1
See Income and Corporation Taxes Act 1988 (c. 1, SIF 63:1), ss. 21(2), 59— Pt. XI Ch. 1 to have effect to the exclusion of those sections (persons chargeable under Schs. A and D).
Notes on Groups of companies
Modifications
- C1
See Development Land Tax Act 1976 (c. 24), s. 47(2)— s. 272 (with omission of subss. (1)(a) and (2)) and the following sections of Chapter II to have effect in relation to the Development of Land Tax Act 1976. The said Act of 1976 repealed by Finance Act 1985 (c. 54), ss. 93, 98(6), Sch. 27 Pt. X with effect from March 19th 1985.
- C2
See Finance Act 1984— for the purposes of ss. 272–281 a trustee savings bank, as defined in s. 54(1) of the Trustee Savings Banks Act 1981 (c. 65), shall be deemed to be a body corporate with effect from November 21st 1982.