A very popular area in the Advanced Tax exam which is due to be examined in March 2023 is CGT groups.

For CGT groups, the direct shareholding must be at least 75% but the indirect only has to be 51%.

Companies in the same group can transfer assets to group members at nil gain/nil loss. (NG/NL). This means the transfer value is original cost-plus indexation from date bought up to December 2017.

If the asset is then sold outside the group, this transfer value becomes the deemed cost.

Alternatively, the company that owns the asset could leave the 75% CGT group within 6 years of the transfer still owning the asset. This results in a degrouping charge (DGC)

The easiest way to think of a DGC is it is simply the gain that would arise if the asset had been sold outside the group at the date of the NG/NL.

The DGC is computed based on market value less cost less indexation to December 2017.

The DGC accrues to the parent company selling the shares and is added to the sale proceeds of the shares. If the shares are eligible for the SSE, the DGC will become tax free.

The substantial shareholding exemption applies when selling the shares in a group company. It automatically applies when a shareholding in a trading company is sold as long as 10% OSC has been owned for at least 12 months out of the previous 6 years.

If the company sells the trade and assets of the company instead , the company remains in the CGT group and a degrouping charge will not crystallise.

Instead , a gain will arise based on the difference between the market value at the date of disposal and the transfer value at the nil gain/ nil loss transfer ( original cost-plus indexation from date bought up to December 2017 ) .

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