Taxation of Chargeable Gains Act 1992

• (b) if there is more than one individual who is an eligible beneficiary in respect of the disposal, to so much of the relevant gain as is equal to the aggregate of the eligible beneficiaries' shares of that gain.

• (3) In this section—

• “eligible beneficiary” has the meaning given by section 169VH(2);

• “relevant gain” has the meaning given by section 169VC(3);

• “the settled property” means settled property that includes or consists of the holding of shares mentioned in section 169VC(1).

• (4) Subsection (5) applies to determine for the purposes of this Chapter, in relation to any individual who is an eligible beneficiary in respect of a disposal within section 169VC(1) made by the trustees of a settlement, that individual's share of the relevant gain.

• (5) That individual's share of the relevant gain on the disposal is so much of the relevant gain on the disposal as bears to the whole of that gain the same proportion as X bears to Y, where—

• X is the interest in possession (other than for a fixed term) which, at the time immediately before the disposal, that individual has under the settlement in the income from the holding of shares mentioned in section 169VC(1), and

• Y is all the interests in that income that persons (including that individual) with interests in possession in that holding have under the settlement at that time.

Disposals of interests in shares

Disposals of interests in shares: joint holdings etc

169VJ

• (1) In section 169VC(1)(a), the reference to the case where a qualifying person disposes of a holding, or part of a holding, of shares in a company includes the case where a qualifying person disposes of an interest in a relevant holding.

• (2) In this section a “relevant holding” means either—

• (a) a number of shares in a company which are of the same class and were acquired in the same capacity jointly by the same two or more persons including the qualifying person, or

• (b) a number of shares in a company which are of the same class and were acquired in the same capacity by the qualifying person solely.

• (3) In this section—

• (a) “an interest” in a relevant holding means any interests of the qualifying person, in any of the shares in the relevant holding, which are by virtue of section 104 to be regarded as a single asset, and

• (b) references to an interest include part of an interest.

• (4) Where section 169VC(1) applies by reason of this section, section 169VD(3) and (4) have effect as if any reference to the number of shares disposed of were a reference to the number of shares an interest in which is disposed of.

• (5) In relation to a disposal by the trustees of a settlement of an interest in a relevant holding falling within subsection (2)(a), sections 169VH(2) and 169VI(3) and (5) have effect as if any reference to the holding of shares mentioned in section 169VC(1) were to the interest disposed of.

• (6) In accordance with subsection (1)—

• (a) in sections 169VN(1)(d), 169VP(1)(d) and 169VS(1)(d) (reorganisations), any reference to a disposal of all or part of a holding includes a disposal by the qualifying person of an interest in the holding, and

• (b) the reference in section 169VT(2) to a disposal of the original shares is to be read, in relation to a case where the original shares fall within subsection (2)(a) above, as a reference to a disposal of the qualifying person's interest in those shares.

Cap on relief

Cap on relief for disposal by an individual

169VK

• (1) This section applies if, on a disposal within section 169VC(1) made by an individual (“the individual concerned”), the aggregate of—

• (a) the amount of the relevant gain on the disposal (“the gain in question”),

• (b) the total amount of any gains that, in relation to earlier disposals by the individual concerned, were charged at the rate in section 169VC(2), and

• (c) the total amount of any reckonable trust gains that, on any previous trust disposals in respect of which the individual concerned was an eligible beneficiary, were charged at the rate in section 169VC(2),

exceeds £1 million.

• (2) The rate in section 169VC(2) applies only to so much (if any) of the gain in question as, when added to the aggregate of the total amounts mentioned in subsection (1)(b) and (c), does not exceed £1 million.

• (3) Section 1H (rates of capital gains tax) applies to so much of the gain in question as is not subject to the rate in section 169VC(2).

• (4) In this section—

• “eligible beneficiary”, in relation to a disposal, is to be read in accordance with section 169VH(2);

• “reckonable trust gain”, in relation to a trust disposal in respect of which the individual concerned was an eligible beneficiary, means—if section 169VI(1)(c) applied in relation to the disposal, that individual's share of the relevant gain on that disposal, within the meaning given by section 169VI(4) and (5);otherwise, the relevant gain on that disposal;

• “the relevant gain”, in relation to a disposal, has the meaning given by section 169VC(3);

• “trust disposal” means a disposal by the trustees of a settlement.

Cap on relief for disposal by trustees of a settlement

169VL

• (1) This section applies where—

• (a) a disposal (“the disposal in question”) is made by the trustees of a settlement,

• (b) that disposal is within section 169VC(1), and

• (c) there is an excess amount in relation to an individual who is an eligible beneficiary in respect of the disposal in question (“the individual concerned”).

• (2) For the purposes of this section there is an “excess amount” in relation to the individual concerned if the aggregate of—

• (a) the amount of the current gain,

• (b) the total amount of any gains that, in relation to earlier disposals made by the individual concerned, were charged at the rate in section 169VC(2), and

• (c) the total amount of any reckonable trust gains that, on any previous trust disposals in respect of which the individual concerned was an eligible beneficiary, were charged at the rate in section 169VC(2),

exceeds £1 million.

• (3) The rate in section 169VC(2) applies to the current gain only to the extent (if any) that the current gain when added to the aggregate of the total amounts mentioned in subsection (2)(b) and (c) does not exceed £1 million.

• (4) Section 1H (rates of capital gains tax) applies to so much of the current gain as is not subject to the rate in section 169VC(2).

• (5) In this section—

• “the current gain” means the reckonable trust gain on the disposal in question;

• “eligible beneficiary”, in relation to a disposal, is to be read in accordance with section 169VH(2);

• “reckonable trust gain”, in relation to any trust disposal in respect of which the individual concerned is an eligible beneficiary, means—if section 169VI(1)(c) applies in relation to the disposal, that individual's share of the relevant gain on that disposal, within the meaning given by section 169VI(4) and (5);otherwise, the relevant gain on that disposal;

• “the relevant gain”, in relation to a disposal, has the meaning given by section 169VC(3);

• “trust disposal” means a disposal by the trustees of a settlement.

Claims for relief

Claims for relief

169VM

• (1) Any claim for investors' relief must be made—

• (a) in the case of a disposal by an individual, by that individual;

• (b) in the case of a disposal by the trustees of a settlement, jointly by—

• (i) the trustees, and

• (ii) the eligible beneficiary in respect of the disposal, within the meaning given by section 169VH(2) (or, if more than one, all those eligible beneficiaries).

• (2) Any claim for investors' relief in respect of a disposal must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.

Reorganisations

Reorganisations where no consideration given

169VN

• (1) This section applies where—

• (a) there is a reorganisation within the meaning of section 126,

• (b) immediately before the reorganisation, a qualifying person holds ordinary shares which, in relation to that reorganisation, are original shares within the meaning of section 126,

• (c) on the reorganisation that person does not give or become liable to give any consideration for, or for any part of, a new holding, and

• (d) at a time after the reorganisation, there is a disposal of all or part of a new holding.

• (2) In this section a “new holding” means—

• (a) the holding that immediately after the reorganisation is (in relation to the original shares) the new holding within the meaning of section 126, or

• (b) where the new holding within the meaning of section 126 consists of two or more actual holdings, any of those actual holdings.

• (3) Subsections (4) and (5) apply for the purposes of determining (for any purpose of this Chapter) the status of shares that immediately before the disposal mentioned in subsection (1)(d) are in the new holding mentioned there (“the new holding concerned”).

• (4) Where a number of the original shares were—

• (a) subscribed for by the qualifying person,

• (b) issued on a particular date (“the relevant issue date”), and

• (c) held continuously by that person for a particular period ending immediately before the reorganisation (“the period concerned”),

the following assumption is to be made.

• (5) That assumption is that an appropriate number of the new shares were—

• (a) subscribed for by the qualifying person,

• (b) issued on the relevant issue date, and

• (c) had by the time immediately after the reorganisation already been held continuously by that person for the period concerned.

• (6) In subsections (4) and (5)—

• “the appropriate number” has the meaning given by section 169VO;

• “the original shares” means the shares held by the qualifying person immediately before the reorganisation that were original shares in relation to the reorganisation;

• “the new shares” means the shares that immediately after the reorganisation were in the new holding concerned (including such, if any, of the original shares as remained after the reorganisation and were in that holding).

• (7) In this section a reference to the “status” of a share is to whether it is qualifying, potentially qualifying or excluded.

• (8) Section 169VE applies to determine, for the purposes of this Chapter, which shares are included in a holding immediately before a reorganisation as it applies for the purposes of determining which shares are included in a holding immediately before a particular disposal.

• (9) References in this section to consideration are to be read in accordance with section 128(2).

The appropriate number

169VO

• (1) The “appropriate number” for the purposes of section 169VN(5) is the number found by multiplying the number of shares that are in the new holding concerned immediately after the reorganisation by the fraction—

$$A B$where—A is the number of the original shares that were—subscribed for by the qualifying person,issued on the relevant issue date, andcontinuously held by that person for the period concerned, andB is the total number of the original shares.$

• (2) In this section—

• “the new holding concerned” has the meaning given by section 169VN(3);

• “the original shares” has the meaning given by section 169VN(6);

• “the relevant issue date” has the meaning given by section 169VN(4);

• “the period concerned” has the meaning given by section 169VN(4).

Reorganisations where consideration given

169VP

• (1) This section applies where—

• (a) there is a reorganisation within the meaning of section 126,

• (b) immediately before the reorganisation, a qualifying person holds ordinary shares which, in relation to that reorganisation, are original shares within the meaning of section 126,

• (c) on the reorganisation that person gives or becomes liable to give consideration for shares ( “ shares issued for consideration ”) which—

• (i) are issued to that person on the reorganisation, and

• (ii) immediately after the reorganisation are in a new holding, and

• (d) at a time after the reorganisation, there is a disposal of all or part of that new holding.

• (2) In this section a “new holding” means—

• (a) the holding that immediately after the reorganisation is (in relation to the original shares) the new holding within the meaning of section 126, or

• (b) where the new holding within the meaning of section 126 consists of two or more actual holdings, any of those actual holdings.

• (3) In determining, for any purpose of this Chapter, the status of shares that immediately before the disposal mentioned in subsection (1)(d) are in the new holding mentioned there—

• (a) the date of issue of the shares issued for consideration is to be taken to be their actual date of issue (rather than the date of issue of any of the original shares), and

• (b) in relation to any part of the new holding for which consideration was not given, sections 169VN(3) to (6) and 169VO apply but as if any reference to the new holding concerned were to that part of the new holding.

• (4) Section 169VN(3) to (6) and 169VO also apply in relation to any other holding which is a new holding in relation to the reorganisation and as respects which the person did not, on the reorganisation, give or become liable to give any consideration.

• (5) In this section a reference to the “status” of a share is to whether it is qualifying, potentially qualifying or excluded.

• (6) References in this section to consideration are to be read in accordance with section 128(2).

Exchange of shares for those in another company

169VQ

• (1) This section applies where section 135 applies in relation to an issue of shares in a company (“company B”) in exchange for shares in another company (“company A”).

• (2) For the purposes of sections 169VN to 169VP—

• (a) companies A and B are to be treated as if they were the same company, and

• (b) the exchange of shares is to be treated as if it were a reorganisation of that company's share capital.

New shares issued on scheme of reconstruction

169VR

• (1) This section applies where—

• (a) section 136 applies in relation to an arrangement between a company (“company A”) and the persons holding shares, or any class of shares, in company A, under which another company (“company B”) issues shares to those persons, and

• (b) under section 136(2)(a) those persons are treated as exchanging shares in company A for the shares held by them in consequence of the arrangement.

• (2) For the purposes of sections 169VN to 169VP—

• (a) companies A and B are to be treated as if they were the same company, and

• (b) the exchange of shares is to be treated as if it were a reorganisation of that company's share capital.

• (3) In the following provisions of this Chapter, any reference to an exchange of shares includes anything that section 136(2)(a) treats as an exchange of shares.

Modification of conditions for being a qualifying share

169VS

• (1) This section applies where—

• (a) an ordinary share (“the original share”) is subscribed for by a qualifying person (“the investor”);

• (b) the conditions in section 169VB(2)(c) and (d) are met in relation to the original share,

• (c) the share is involved in an exchange of shares treated under section 169VQ or 169VR as a reorganisation of share capital, and accordingly is included in the original shares within the meaning of section 169VN(6), and

• (d) subsequently there is a disposal of all or part of a holding of shares that in relation to that exchange is a new holding within the meaning given by section 169VN(2).

• (2) As respects a share which is in that holding immediately before that disposal, the conditions in section 169VB(2)(f) and (g) are to be regarded as met if (and only if)—

• (a) in relation to the period beginning with the issue of the original share and ending with the exchange of shares, those conditions were met by the original share, and

• (b) in relation to the period beginning with the exchange of shares and ending with the disposal, those conditions were met by a share representing the original share.

• (3) Accordingly—

• (a) in section 169VB(2)(f) and (g) as they apply to the original share, any reference to the share-holding period is to be read as to the period mentioned in subsection (2)(a) above, and

• (b) in section 169VB(2)(f) and (g) as they apply to a share representing the original share, any reference to the share-holding period is to be read as to the period mentioned in subsection (2)(b) above.

• (4) In subsection (1)(c) “the share” includes a share that, following a reorganisation or following an exchange of shares in relation to which section 169VQ or 169VR applies, represents the original share, and subsections (2) and (3) apply in such a case with the necessary modifications.

Election to disapply section 127

169VT

• (1) This section applies where—

• (a) there is—

• (i) a reorganisation (within the meaning of section 126), or

• (ii) an exchange of shares which is treated as such a reorganisation by virtue of section 135 or 136, and

• (b) the original shares and the new holding would fall to be treated by virtue of section 127 as the same asset.

• (2) If an election is made under this section, a claim for investors' relief may be made as if the reorganisation or exchange of shares involved a disposal of the original shares; and if such a claim is made section 127 and sections 169VN to 169VS do not apply.

• (3) Any election under this section must be made—

• (a) if the reorganisation or exchange of shares would (apart from section 127) involve a disposal by the trustees of a settlement, jointly by—

• (i) the trustees, and

• (ii) the person who if the disposal were made would be the eligible beneficiary in respect of the disposal, within the meaning given by section 169VH(2) (or, if more than one, all the persons who would be such eligible beneficiaries);

• (b) otherwise, by the individual concerned.

• (4) Any election under this section must be made on or before the first anniversary of the 31 January following the tax year in which the reorganisation or exchange of shares takes place.

• (5) In this section “the original shares” and “the new holding” have the meaning given by section 126.

Supplemental

“Subscribe” etc

169VU

• (1) For the purposes of this Chapter (other than this subsection) a person “subscribes for” a share in a company if—

• (a) that person subscribes for the share,

• (b) the share is issued to that person by the company for consideration consisting wholly of cash,

• (c) the share is fully paid up at the time it is issued,

• (d) the share is subscribed for, and issued, for genuine commercial reasons and not as part of arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage to any person, and

• (e) the share is subscribed for, and issued, by way of a bargain at arm's length.

• (2) In subsection (1) “arrangements” and “tax advantage” have the same meaning as in section 16A.

• (3) If—

• (a) an individual (“A”) subscribed for, or is treated under this subsection as having subscribed for, any shares,

• (b) A transferred the shares to another individual (“B”) during their lives, and

• (c) A was living together with B as B's spouse or civil partner at the time of the transfer,

B is to be treated for the purposes of this Chapter as having subscribed for the shares.

• (4) Accordingly, for the purposes of this Chapter any period for which A held the shares continuously is to be added to, and treated as part of, the period for which B held the shares continuously.

• (5) In this Chapter, apart from subsections (3) and (4), references to a person's having subscribed for a share include the person's having subscribed for the share jointly with any other person (and references to a person's holding a share or to a share being issued to a person are to be read accordingly).

“Trading company” etc

169VV

• (1) In this Chapter “trading company” and “the holding company of a trading group” have the same meaning as in section 165 (see section 165A).

• (2) For the purposes of this Chapter a company is not to be regarded as ceasing to be a trading company, or the holding company of a trading group, merely because of anything done in consequence of—

• (a) the company, or any of its subsidiaries, being in administration or receivership, or

• (b) a resolution having been passed, or an order made, for the winding up of the company or any of its subsidiaries.

• (3) But subsection (2) applies only if—

• (a) the entry into administration or receivership, or the resolution or order for winding up, and

• (b) everything done as a result of the company concerned being in administration or receivership, or as a result of that resolution or order,

is for genuine commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

“Relevant employee”

169VW

• (1) This section applies to determine for the purposes of—

• (a) section 169VB(2)(g), or

• (b) section 169VH(2)(c),

whether a particular person has at any time in the relevant period been a “relevant employee” in respect of the issuing company.

• (2) A person who has at any time in the relevant period been an officer or employee of—

• (a) the issuing company, or

• (b) a connected company,

is to be regarded as having at that time been a relevant employee in respect of the issuing company, but this is subject to subsections (3) and (5).

• (3) If—

• (a) a person is an unremunerated director of the issuing company or a connected company at any time in the relevant period, and

• (b) the condition in subsection (4) is met,

the fact that the person holds that directorship at that time does not make the person a relevant employee in respect of the issuing company at that time.

• (4) The condition referred to in subsection (3) is that at no time before the relevant period had the person mentioned in that subsection, or a person connected with that person, been—

• (a) connected with the issuing company, or

• (b) involved in carrying on (whether on the person's own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the issuing company or a company connected with that company.

• (5) If—

• (a) a person becomes an employee of the issuing company or a connected company at a time which is—

• (i) within the relevant period, but

• (ii) not within the first 180 days of that period,

• (b) at the beginning of the relevant period, there was no reasonable prospect that the person would become such an employee within the relevant period, and

• (c) the person is not at any time in the relevant period a director of the issuing company or a connected company,

that employment of the person does not make the person a relevant employee in respect of the issuing company at any time in the relevant period.

• (6) For the purposes of subsection (5) there is a “reasonable prospect” of a thing if it is more likely than not.

• (7) In this section—

• “director” is to be read in accordance with section 452 of CTA 2010,

• “connected company” means a company which at any time in the relevant period is connected with the issuing company (and it does not matter for this purpose whether that time is a time when the person in question is an officer or employee of either company);

• “the issuing company” means the company mentioned in (as the case may be) section 169VB(2)(g) or section 169VH(2)(c);

• “the relevant period” means the period mentioned in (as the case may be) section 169VB(2)(g) or section 169VH(2)(c);

• “unremunerated director” has the meaning given by section 169VX.

“Unremunerated director”

169VX

• (1) For the purposes of section 169VW a person (“the person concerned”) is an “unremunerated director” of the issuing company or a connected company at a particular time in the relevant period if that person is a director of that company at that time and—

• (a) does not receive in the relevant period any disqualifying payment from the issuing company or a related person, and

• (b) is not entitled to receive any such payment in respect of that period or any part of it.

• (2) In this section “disqualifying payment” means any payment other than—

• (a) a payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the person concerned in the performance of his or her duties as a director,

• (b) any interest which represents no more than a reasonable commercial return on money lent to the issuing company or a related person,

• (c) any dividend or other distribution which does not exceed a normal return on the investment to which the dividend or distribution relates,

• (d) any payment for the supply of goods which does not exceed their market value,

• (e) any payment of rent for any property occupied by the issuing company or a related person which does not exceed a reasonable and commercial rent for the property, or

• (f) any necessary and reasonable remuneration which is—

• (i) paid for qualifying services that are provided to the issuing company or a related person in the course of a trade or profession carried on wholly or partly in the United Kingdom, and

• (ii) taken into account in calculating for tax purposes the profits of that trade or profession.

• (3) In this section a “related person” means—

• (a) a connected company of which the person concerned is a director, or

• (b) any person connected with the issuing company or with a company within paragraph (a).

• (4) In this section any reference to a payment to the person concerned includes a payment made to that person indirectly or to that person's order or for that person's benefit.

• (5) In this section “qualifying services” means services which are—

• (a) not secretarial or managerial services, and

• (b) not services of a kind provided by the person to whom they are provided.

• (6) In this section the following expressions have the same meaning as in section 169VW—

• “connected company”;

• “director”;

• “issuing company”;

• “relevant period”.

General definitions

169VY

In this Chapter—

• “employee” (except in the expression “relevant employee”, which is to be read in accordance with section 169VW) has the meaning given by section 4 of ITEPA 2003;

• “employment” has the meaning given by section 4 of ITEPA 2003;

• “exchange of shares” is to be read in accordance with section 169VR(3);

• “excluded share” has the meaning given by section 169VB;

• a “holding” of shares in a company means a holding of such shares which by virtue of section 104(1) is to be regarded as a single asset;

• “investors' relief” has the meaning given by section 169VA(3);

• “office” has the meaning given by section 5(3) of ITEPA 2003;

• “ordinary shares”, in relation to a company, means any shares forming part of the company's ordinary share capital (within the meaning given by section 989 of ITA 2007);

• “potentially qualifying share” has the meaning given by section 169VB;

• “qualifying person” has the meaning given by section 169VC(7);

• “qualifying share” has the meaning given by section 169VB;

• “subscribe” is to be read in accordance with section 169VU;

• “trading company” and “the holding company of a trading group” are to be read in accordance with section 169VV.

Part VI — Companies, oil, insurance etc.

Chapter I — Companies

Groups of companies

Interpretation of sections 171 to 181.

170

• (1) This section has effect for the interpretation of sections 171 to 181 except in so far as the context otherwise requires, and in those sections—

• (a) “profits” means income and chargeable gains, and

• (b) “trade” includes “vocation”, and includes also an office or employment.

Until 6th April 1993 paragraph (b) shall have effect with the addition at the end of the words “or the occupation of woodlands in any context in which the expression is applied to that in the Income Tax Acts".

• (2) Except as otherwise provided—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) subsections (3) to (6) below apply to determine whether companies form a group and, where they do, which is the principal company of the group;

• (c) in applying section 1154(3) of CTA 2010 (meaning of “75% subsidiary”) any share capital of a registered society (see section 1119 of that Act) shall be treated as ordinary share capital; and

• (d) “group” and “subsidiary” shall be construed with any necessary modifications where applied to a company incorporated under the law of a country outside the United Kingdom.

• (3) Subject to subsections (4) to (6) below—

• (a) a company (referred to below and in sections 171 to 181 as the “principal company of the group”) and all its 75 per cent. subsidiaries form a group and, if any of those subsidiaries have 75 per cent. subsidiaries, the group includes them and their 75 per cent. subsidiaries, and so on, but

• (b) a group does not include any company (other than the principal company of the group) that is not an effective 51 per cent. subsidiary of the principal company of the group.

• (4) A company cannot be the principal company of a group if it is itself a 75 per cent. subsidiary of another company.

• (5) Where a company (“the subsidiary”) is a 75 per cent. subsidiary of another company but those companies are prevented from being members of the same group by subsection (3)(b) above, the subsidiary may, where the requirements of subsection (3) above are satisfied, itself be the principal company of another group notwithstanding subsection (4) above unless this subsection enables a further company to be the principal company of a group of which the subsidiary would be a member.

• (6) A company cannot be a member of more than one group; but where, apart from this subsection, a company would be a member of 2 or more groups (the principal company of each group being referred to below as the “head of a group”), it is a member only of that group, if any, of which it would be a member under one of the following tests (applying earlier tests in preference to later tests)—

• (a) it is a member of the group it would be a member of if, in applying subsection (3)(b) above, there were left out of account any amount to which a head of a group is or would be beneficially entitled of any profits available for distribution to equity holders of a head of another group or of any assets of a head of another group available for distribution to its equity holders on a winding-up,

• (b) it is a member of the group the head of which is beneficially entitled to a percentage of profits available for distribution to equity holders of the company that is greater than the percentage of those profits to which any other head of a group is so entitled,

• (c) it is a member of the group the head of which would be beneficially entitled to a percentage of any assets of the company available for distribution to its equity holders on a winding-up that is greater than the percentage of those assets to which any other head of a group would be so entitled,

• (d) it is a member of the group the head of which owns directly or indirectly a percentage of the company’s ordinary share capital that is greater than the percentage of that capital owned directly or indirectly by any other head of a group (interpreting this paragraph as if it were included in section 1154(2) of CTA 2010).

• (7) For the purposes of this section and sections 171 to 181, a company (“the subsidiary”) is an effective 51 per cent. subsidiary of another company (“the parent”) at any time if and only if—

• (a) the parent is beneficially entitled to more than 50 per cent. of any profits available for distribution to equity holders of the subsidiary; and

• (b) the parent would be beneficially entitled to more than 50 per cent. of any assets of the subsidiary available for distribution to its equity holders on a winding-up.

• (8) Chapter 6 of Part 5 of CTA 2010 (group relief: equity holders and profits or assets available for distribution) applies for the purposes of subsections (6) and (7) as if—

• (a) references to section 151(4)(a) and (b) of that Act were references to subsections (6) and (7) above, ...

• (aa) in section 158 of that Act after subsection (2) there were inserted—

(2A) But for those purposes a person carrying on a business of banking is not treated as a loan creditor of a company in respect of any loan capital or debt issued or incurred by the company for money lent by the person to the company in the ordinary course of that business.

, and

• (b) sections 171(1)(b) and (3), 173, 174 and 176 to 178 of that Act were omitted.

• (9) For the purposes of this section and sections 171 to 181, references to a company apply only to—

• (a) a company as defined in section 1(1) of the Companies Act 2006 (c. 46), and

• (b) a company (other than a limited liability partnership) which is constituted under any other Act or a Royal Charter or letters patent or ... is formed under the law of a country or territory outside the United Kingdom, and

• (c) a registered society (see section 1119 of CTA 2010) ... ; and

• (cc) an incorporated friendly society within the meaning of the Friendly Societies Act 1992; and

• (d) a building society.

• (10) For the purposes of this section and sections 171 to 181, a group remains the same group so long as the same company remains the principal company of the group, and if at any time the principal company of a group becomes a member of another group, the first group and the other group shall be regarded as the same, and the question whether or not a company has ceased to be a member of a group shall be determined accordingly.

• (10A) Where the principal company of a group (Group 1)—

• (a) becomes an SE by reason of being the acquiring company in the formation of an SE by merger by acquisition (in accordance with Articles 2(1), 17(2)(a) and 29(1) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea)),

• (b) becomes a subsidiary of a holding SE (formed in accordance with Article 2(2) of that Regulation), or

• (c) is transformed into an SE (in accordance with Article 2(4) of that Regulation),

Group 1 and any group of which the SE is a member on formation shall be regarded as the same; and the question whether or not a company has ceased to be a member of a group shall be determined accordingly.

• (11) For the purposes of this section and sections 171 to 181, the passing of a resolution or the making of an order, or any other act, for the winding-up of a member of a group of companies shall not be regarded as the occasion of that or any other company ceasing to be a member of the group.

• (12) Sections 171 to 181, except in so far as they relate to recovery of tax, shall also have effect in relation to bodies from time to time established by or under any enactment for the carrying on of any industry or part of an industry, or of any undertaking, under national ownership or control as if they were companies within the meaning of those sections, and as if any such bodies charged with related functions (and in particular the Boards and Holding Company established under the Transport Act 1962 and the new authorities within the meaning of the Transport Act 1968 established under that Act of 1968) and subsidiaries of any of them formed a group, and as if also any 2 or more such bodies charged at different times with the same or related functions were members of a group.

• (13) Subsection (12) shall have effect subject to any enactment by virtue of which property, rights, liabilities or activities of one such body fall to be treated for corporation tax as those of another, including in particular any such enactment in Chapter VI of Part XII of the Taxes Act.

• (14) Sections 171 to 181, except in so far as they relate to recovery of tax, shall also have effect in relation to the Executive for a designated area within the meaning of section 9(1) of the Transport Act 1968 as if that Executive were a company within the meaning of those sections.

Transactions within groups

Transfers within a group: general provisions.

171

• (1) Where—

• (a) a company (“company A”) disposes of an asset to another company (“company B”) at a time when both companies are members of the same group, and

• (b) the conditions in subsection (1A) below are met,

company A and company B are treated for the purposes of corporation tax on chargeable gains as if the asset were acquired by company B for a consideration of such amount as would secure that neither a gain nor a loss would accrue to company A on the disposal.

• (1A) The conditions referred to in subsection (1)(b) above are—

• (a) that company A is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately before that time, and

• (b) that company B is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately after that time.

For this purpose an asset is a “chargeable asset” in relation to a company at any time if, were the asset to be disposed of by the company at that time, any gain accruing to the company would be a chargeable gain chargeable to corporation tax as a result of section 2B(3) or (4).

• (1B) If—

• (a) company A is deemed under section 25(3) to have previously disposed of the asset, but

• (b) no gain or loss accrued on that deemed disposal as a result of section 25ZA(2),

that deemed disposal is to be ignored in applying subsection (1) of this section in relation to company B.

• (2) Subsection (1) above shall not apply where the disposal is—

• (a) a disposal of a debt due from company B effected by satisfying the debt or part of it; or

• (b) a disposal of redeemable shares in a company on the occasion of their redemption; or

• (ba) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (c) a disposal by or to an investment trust; or

• (cc) a disposal by or to a venture capital trust; or

• (cd) a disposal by or to a qualifying friendly society; or

• (d) a disposal to a dual resident investing company; ... ; or

• (da) a disposal by or to a company which is, or is a member of, a UK REIT within the meaning of Part 12 of CTA 2010 (Real Estate Investment Trusts); or

• (db) a disposal by company A in fulfilment of its obligations under an option granted to company B at a time when those companies were not members of the same group;

• (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and the reference in subsection (1) above to company A disposing of an asset shall not apply to anything which under section 122 is to be treated as a disposal of an interest in shares in a company in consideration for a capital distribution (as defined in that section) from that company, whether or not involving a reduction of capital.

• (3) Subsection (1) above shall not apply to a transaction treated by section 127 as it applies by virtue of section 135 as not involving a disposal by company A.

• (3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) For the purposes of subsection (1) above, so far as the consideration for the disposal consists of money or money’s worth by way of compensation for any kind of damage or injury to assets, or for the destruction or dissipation of assets or for anything which depreciates or might depreciate an asset, the disposal shall be treated as being to the person who, whether as an insurer or otherwise, ultimately bears the burden of furnishing that consideration.

• (5) In subsection (2)(cd) above “qualifying friendly society” means a company which is a qualifying society for the purposes of section 165 of the Finance Act 2012 (incorporated friendly societies entitled to exemption from income tax and corporation tax on certain profits).

• (6) Subsection (1) above applies notwithstanding any provision in this Act fixing the amount of the consideration deemed to be received on a disposal or given on an acquisition.

But where it is assumed for any purpose that a member of a group of companies has sold or acquired an asset, it shall be assumed also that it was not a sale or acquisition to which this section applies.

Election to reallocate gain or loss to another member of the group

171A

• (1) This section applies where—

• (a) a chargeable gain or an allowable loss accrues to a company (“company A”) in respect of an asset (or would so accrue but for an election under this section),

• (b) at the time of accrual, company A and another company (“company B”) are members of the same group, and

• (c) had company A disposed of the asset to company B immediately before the time of accrual, section 171(1) would have applied.

• (2) In determining for the purposes of subsection (1)(c) whether subsection (1) of section 171 would have applied, it is to be assumed that subsection (1A)(b) of that section read—

(b) that— (i) at the time of the disposal, company B is resident in the United Kingdom, or carrying on a trade in the United Kingdom through a permanent establishment there, or (ii) the asset is a chargeable asset in relation to company B immediately after the time of the disposal.

• (3) In this section “the time of accrual” means the time the chargeable gain or allowable loss accrues to company A (or would so accrue but for an election under this section).

• (4) Companies A and B may make a joint election to transfer the chargeable gain or allowable loss, or such part of it as is specified in the election, from company A to company B (but see subsection (4A)).

• (4A) An election may not be made under this section to transfer the whole or part of a ring fence chargeable gain from a company carrying on a ring fence trade to a company not carrying on such a trade.

• (4B) In subsection (4A)—

• “ring fence chargeable gain”, in relation to a company, means—a chargeable gain accruing to the company on a material disposal within the meaning of section 197 (disposals of interests in oil fields etc: ring fence provisions), ora chargeable gain treated as accruing to the company by virtue of section 197(4);

• “ring fence trade” has the same meaning as in Part 8 of CTA 2010 (see section 277 of that Act).

• (5) An election under this section must be made—

• (a) by notice to an officer of Revenue and Customs, and

• (b) no later than two years after the end of the accounting period of company A in which the time of accrual falls.

• (6) An election, or two or more elections made simultaneously, is or are of no effect if, taken together with each earlier election (if any) made in respect of the same gain or loss, it or they would (apart from this subsection) have effect in relation to an amount exceeding the gain or loss.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) For the effect of an election under this section, see section 171B.

Election under section 171A: effect

171B

• (1) This section applies where an election is made under section 171A.

• (2) The effect of the election is that the chargeable gain or allowable loss, or such amount of it as is specified in the election, is treated as accruing not to company A but to company B.

• (3) The gain or loss treated as accruing to company B is to be taken to accrue at the time that, had the election not been made, it would have accrued to company A.

• (4) Where company B is not resident in the United Kingdom, the gain or loss treated as accruing to it is to be taken to accrue in respect of a chargeable asset held by it.

• (5) For this purpose an asset is a “chargeable asset” in relation to a company at any time if any gain accruing to the company on a disposal of the asset by the company at that time would be a chargeable gain chargeable to corporation tax as a result of section 2B(3) or (4).

• (6) Any payment made by company A to company B or by company B to company A, in pursuance of an agreement between them in connection with the election—

• (a) is not to be taken into account in computing profits or losses of either company for corporation tax purposes, and

• (b) is not for any purposes of the Corporation Tax Acts to be regarded as a distribution,

provided it does not exceed the amount of the chargeable gain or allowable loss that is treated, as a result of the election, as accruing to company B.

Elections under section 171A: insurance companies

171C

• (1) This section applies where —

• (a) an election is made under section 171A in relation to a gain or loss, and

• (b) company B is an insurance company.

• (2) For the purposes of section 171A(1)(c), section 118 of the Finance Act 2012 (disposals of certain assets by and to insurance companies to fall outside the rule in section 171) is to be disregarded.

• (3) Subsection (2) does not apply if—

• (a) company A is an insurance company, and

• (b) the gain or loss arose in respect of the disposal of an asset that, immediately before the disposal, was held for the purposes of the company's long-term business.

• (4) The chargeable gain or allowable loss treated as accruing to company B as a result of the election is to be treated for the purposes of section 210A (ring-fencing of losses) as a non-BLAGAB chargeable gain or (as the case may be) a non-BLAGAB allowable loss.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfer of United Kingdom branch or agency.

172

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfers within a group: trading stock.

173

• (1) Where—

• (a) a company (“company A”) acquires an asset as trading stock of a trade to which this section applies,

• (b) the acquisition is from a company (“company B”) that at the time of the acquisition is a member of the same group of companies, and

• (c) the asset did not form part of the trading stock of any such trade carried on by company B,

company A is treated for the purposes of section 161 as having acquired the asset otherwise than as trading stock and immediately appropriated it for the purposes of the trade as trading stock.

• (2) Where—

• (a) a company (“company C”) disposes of an asset forming part of the trading stock of a trade to which this section applies carried on by that company,

• (b) the disposal is to another company (“company D”) that at the time of the disposal is a member of the same group of companies, and

• (c) the asset is acquired by company D otherwise than as trading stock of any such trade carried on by it,

company C is treated for the purposes of section 161 as having appropriated the asset immediately before the disposal for some purpose other than the purpose of use as trading stock.

• (3) The trades to which this section applies are—

• (a) any trade carried on by a company resident in the United Kingdom, and

• (b) any trade carried on in the United Kingdom through a permanent establishment by a company not so resident.

Disposal or acquisition outside a group.

174

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) Schedule 2 shall apply in relation to a disposal of an asset by a company which is or has been a member of a group of companies, and which acquired the asset from another member of the group in a transfer to which section 171(1) applied, as if all members of the group for the time being were the same person, and as if the acquisition or provision of the asset by the group, so taken as a single person, had been the acquisition or provision of it by the member disposing of it.

• (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Replacement of business assets by members of a group.

175

• (1) Subject to subsection (2) below, for the purposes of sections 152 to 158 all the trades to which this section applies carried on by members of a group of companies shall, for the purposes of corporation tax on chargeable gains, be treated as a single trade ... .

• (1A) The trades to which this section applies are—

• (a) any trade carried on by a company that is resident in the United Kingdom, and

• (b) any trade carried on in the United Kingdom through a permanent establishment by a company not so resident.

• (2) Subsection (1) above does not apply where so much of the consideration for the disposal of the old assets as is applied in acquiring the new assets or the interest in them is so applied by a member of the group which is a dual resident investing company ... and in this subsection “the old assets” and “the new assets” have the same meanings as in section 152.

• (2A) Section 152 or 153 shall apply where—

• (a) the disposal is by a company which, at the time of the disposal, is a member of a group of companies,

• (b) the acquisition is by another company which, at the time of the acquisition, is a member of the same group, and

• (ba) the conditions in subsection (2AA) below are met, and

• (c) the claim is made by both companies,

as if both companies were the same person.

• (2AA) The conditions referred to in subsection (2A)(ba) above are—

• (a) that the company making the disposal is resident in the United Kingdom at the time of the disposal, or the assets are chargeable assets in relation to that company immediately before that time, and

• (b) that the acquiring company is resident in the United Kingdom at the time of the acquisition, or the assets are chargeable assets in relation to that company immediately after that time.

For this purpose an asset is a “chargeable asset” in relation to a company at any time if, were the asset to be disposed of by the company at that time, any gain accruing to the company would be a chargeable gain and would by virtue of section 2B(3) form part of its chargeable profits for corporation tax purposes.

• (2B) Section 152 or 153 shall apply where a company which is a member of a group of companies but is not carrying on a trade—

• (a) disposes of assets (or an interest in assets) used, and used only, for the purposes of the trade which (in accordance with subsection (1) above) is treated as carried on by the members of the group which carry on a trade, or

• (b) acquires assets (or an interest in assets) taken into use, and used only, for those purposes,

as if the first company were carrying on that trade.

• (2C) Neither section 152 nor section 153 shall apply if the acquisition of, or of the interest in, the new assets—

• (a) is made by a company which is a member of a group of companies, and

• (b) is one to which any of the no gain/no loss provisions applies or is one where, by virtue of section 195B, 195C or 195E, neither a gain nor a loss accrues to the person making the disposal.

• (3) Section 154(2) applies where the company making the claim is a member of a group of companies—

• (a) as if all members of the group for the time being carrying on a trade to which this section applies were the same person, and

• (b) in accordance with subsection (1) above, as if all those trades were the same trade;

so that the gain accrues to the member of the group holding the asset concerned on the occurrence of the event mentioned in section 154(2).

• (4) Subsection (2) above shall apply where the acquisition took place before 20th March 1990 and the disposal takes place within the period of 12 months beginning with the date of the acquisition or such longer period as the Board may by notice allow with the omission of the words from “or a company" to “the acquisition".

Losses attributable to depreciatory transactions

Depreciatory transactions within a group.

176

• (1) This section has effect as respects a disposal of shares in, or securities of, a company (“the ultimate disposal”) if the value of the shares or securities has been materially reduced by a depreciatory transaction effected on or after 31st March 1982; and for this purpose “depreciatory transaction” means—

• (a) any disposal of assets at other than market value by one member of a group of companies to another, or

• (b) any other transaction satisfying the conditions of subsection (2) below,

except that a transaction shall not be treated as a depreciatory transaction to the extent that it consists of a payment which is required to be or has been brought into account, for the purposes of corporation tax on chargeable gains, in computing a chargeable gain or allowable loss accruing to the person making the ultimate disposal.

• (2) The conditions referred to in subsection (1)(b) above are—

• (a) that the company, the shares in which, or securities of which, are the subject of the ultimate disposal, or any 75 per cent. subsidiary of that company, was a party to the transaction, and

• (b) that the parties to the transaction were or included 2 or more companies which at the time of the transaction were members of the same group of companies.

• (3) Without prejudice to the generality of subsection (1) above, the cancellation of any shares in or securities of one member of a group of companies under section 641 of the Companies Act 2006 shall, to the extent that immediately before the cancellation those shares or securities were the property of another member of the group, be taken to be a transaction fulfilling the conditions in subsection (2) above.

• (4) If the person making the ultimate disposal is, or has at any time been, a member of the group of companies referred to in subsection (1) or (2) above, any allowable loss accruing on the disposal shall be reduced to such extent as is just and reasonable having regard to the depreciatory transaction, but if the person making the ultimate disposal is not a member of that group when he disposes of the shares or securities, no reduction of the loss shall be made by reference to a depreciatory transaction which took place when that person was not a member of that group.

• (5) A reduction under subsection (4) above shall be made on the footing that the allowable loss ought not to reflect any diminution in the value of the company’s assets which was attributable to a depreciatory transaction, but allowance may be made for any other transaction on or after 31st March 1982 which has enhanced the value of the company’s assets and depreciated the value of the assets of any other member of the group.

• (6) If, under subsection (4) above, a reduction is made in an allowable loss, any chargeable gain accruing on a disposal of the shares or securities of any other company which was a party to the depreciatory transaction by reference to which the reduction was made, being a disposal not later than 6 years after the depreciatory transaction, shall be reduced to such extent as is just and reasonable having regard to the effect of the depreciatory transaction on the value of those shares or securities at the time of their disposal, but the total amount of any one or more reductions in chargeable gains made by reference to a depreciatory transaction shall not exceed the amount of the reductions in allowable losses made by reference to that depreciatory transaction.

All such adjustments, whether by way of discharge or repayment of tax, or otherwise, as are required to give effect to the provisions of this subsection may be made at any time.

• (7) For the purposes of this section—

• (a) “securities” includes any loan stock or similar security whether secured or unsecured,

• (b) references to the disposal of assets include references to any method by which one company which is a member of a group appropriates the goodwill of another member of the group, ...

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) References in this section to the disposal of shares or securities include references to the occasion of the making of a claim under section 24(2) that the value of shares or securities has become negligible, and references to a person making a disposal shall be construed accordingly.

• (9) In any case where the ultimate disposal is not one to which section 35(2) applies, the references above to 31st March 1982 shall be read as references to 6th April 1965.

Dividend stripping.

177

• (1) The provisions of this section apply where one company (“the first company”) has a holding in another company (“the second company”) and the following conditions are fulfilled—

• (a) that the holding amounts to, or is an ingredient in a holding amounting to, 10 per cent. of all holdings of the same class in the second company,

• (b) that the first company is not a dealing company in relation to the holding,

• (c) that a distribution is or has been made to the first company in respect of the holding, and

• (d) that the effect of the distribution is that the value of the holding is or has been materially reduced.

• (2) Where this section applies in relation to a holding, section 176 shall apply, subject to subsection (3) below, in relation to any disposal of any shares or securities comprised in the holding, whether the disposal is by the first company or by any other company to which the holding is transferred by a transfer to which section 140A, or 171 applies, as if the distribution were a depreciatory transaction and, if the companies concerned are not members of a group of companies, as if they were.

• (3) The distribution shall not be treated as a depreciatory transaction to the extent that it consists of a payment which is required to be or has been brought into account, for the purposes of corporation tax on chargeable gains, in computing a chargeable gain or allowable loss accruing to the person making the ultimate disposal.

• (4) This section shall be construed as one with section 176, and in any case where the ultimate disposal is not one to which section 35(2) applies, the reference in subsection (1)(c) above to a distribution does not include a distribution made before 30th April 1969.

• (5) For the purposes of this section a company is “a dealing company” in relation to a holding if a profit on the sale of the holding would be taken into account in computing the company’s trading profits.

• (6) References in this section to a holding in a company refer to a holding of shares or securities by virtue of which the holder may receive distributions made by the company, but so that—

• (a) a company’s holdings of different classes in another company shall be treated as separate holdings, and

• (b) holdings of securities which differ in the entitlements or obligations they confer or impose shall be regarded as holdings of different classes.

• (7) For the purposes of subsection (1) above—

• (a) all a company’s holdings of the same class in another company are to be treated as ingredients constituting a single holding, and

• (b) a company’s holding of a particular class shall be treated as an ingredient in a holding amounting to 10 per cent. of all holdings of that class if the aggregate of that holding and other holdings of that class held by connected persons amounts to 10 per cent. of all holdings of that class,

and section 286 shall have effect in relation to paragraph (b) above as if, in subsection (7) of that section, after the words “or exercise control of" in each place where they occur there were inserted the words “ or to acquire a holding in ”.

Restriction on set-off of pre-entry losses.

177A

Schedule 7A to this Act (which makes provision in relation to losses accruing to a company before the time when it becomes a member of a group of companies ... ) shall have effect.

Pre-entry gains

Restrictions on setting losses against pre-entry gains.

177B

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Companies leaving groups

Company ceasing to be member of group: pre-appointed day cases.

178

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company ceasing to be member of group: post-appointed day cases.

179

• (1) This section applies where—

• (a) a company (“company A”) acquires an asset from another company (“company B”) at a time when company A and company B are members of the same group,

• (b) the conditions in subsection (1A) below are met, and

• (c) company A ceases to be a member of that group within the period of six years after the time of the acquisition.

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 in consequence of another member of the group ceasing to exist.

• (1A) The conditions referred to in subsection (1)(b) above are—

• (a) that company A is resident in the United Kingdom at the time it acquires the asset, or the asset is a chargeable asset in relation to that company immediately after that time, and

• (b) that company B is resident in the United Kingdom at the time of that acquisition, or the asset is a chargeable asset in relation to that company immediately before that time.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (1AA) If shares in a company are transferred as part of the process of the transfer of a business to which section 140A or 140C applies and in consequence of the transfer the company ceases to be a member of a group (“Group 1”)—

• (a) the company shall not be treated for the purposes of this section as having left Group 1, and

• (b) if the transferee is a member of a group (“Group 2”) and in consequence of the transfer the company becomes a member of Group 2 it shall be treated, for the purposes of this section, as if Group 1 and Group 2 were the same.

• (1B) Where, as part of the process of a merger to which section 140E applies, a company which is a member of a group (“Group 1”) ceases to exist and in consequence of that cessation—

• (a) assets are transferred to the transferee, or

• (b) shares in one or more companies which were also members of the group are transferred to the transferee,

a company which has ceased to exist, or the shares in which have been transferred to the transferee, shall not be treated for the purposes of this section as having left Group 1.

• (1C) If subsection (1B) applies in relation to a company then for the purposes of this section—

• (a) the transferee and a company which has ceased to exist in consequence of the merger shall be treated as the same entity, and

• (b) if the transferee is a member of a group (“Group 2”) following the merger (whether or not as the principal company of the group) a company which was a member of Group 1 and became a member of Group 2 in consequence of the merger shall be treated, for the purposes of this section, as if Group 1 and Group 2 were the same.

• (1D) In subsections (1B) and (1C), “transferor” and “transferee” have the meaning given by section 140E(9).

• (2) Where two companies cease to be members of the group at the same time, subsection (1) does not have effect as respects the acquisition of an asset by one of the companies from the other if condition A or B is met.

• (2ZA) Condition A is that the companies—

• (a) are both 75 per cent subsidiaries and effective 51 per cent subsidiaries of another company on the date of the acquisition, and

• (b) remain both 75 per cent subsidiaries and effective 51 per cent subsidiaries of that other company until immediately after they cease to be members of the group.

• (2ZB) Condition B is that one of the companies—

• (a) is both a 75 per cent subsidiary and an effective 51 per cent subsidiary of the other on the date of the acquisition, and

• (b) remains both a 75 per cent subsidiary and an effective 51 per cent subsidiary of the other until immediately after the companies cease to be members of the group.

• (2A) Subsection (2AA) applies where—

• (a) a company (“company A”) acquired an asset from another company (“company B”) at a time when both company A and company B were members of the same group (“the first group”),

• (aa) company A has ceased to be a member of the first group,

• (b) subsection (2) above applies in the case of company A’s ceasing to be a member of the first group so that subsection (1) above does not have effect as respects the acquisition of that asset,

• (c) at the time company A ceases to be a member of the first group there is a connection between that group and the group of companies of which company A becomes a member on leaving the first group (“the second group”), and

• (d) subsequently—

• (i) company A ceases to be a member of the second group, or

• (ii) (before sub-paragraph (i) applies) there ceases to be a connection between the two groups.

• (2AA) Where this subsection applies—

• (a) in a case within subsection (2A)(d)(ii), for the purposes of this section (other than subsection (2A)) as it applies as respects the acquisition, company A and any associated company are to be treated as having ceased to be members of the second group at the time the connection between the two groups ceases,

• (b) subsection (1) has effect in relation to company A's ceasing to be a member of the second group as if it had been the second group of which both companies had been members at the time of the acquisition, and

• (c) subsection (2) may operate to prevent subsection (1) applying by virtue of paragraph (b), unless subsection (2AB) applies.

• (2AB) This subsection applies if company A's ceasing to be a member of the first group at the same time as one or more associated companies forms part of arrangements the main purpose, or one of the main purposes, of which is the avoidance of a liability to corporation tax.

• (2B) For the purposes of subsection (2A) above there is a connection between the first group and the second group at a particular time if, at that time,, the company which is the principal company of that group is under the control of—

• (a) the company which is the principal company of the first group or, if that group no longer exists, which was the principal company of that group when company A ceased to be a member of it;

• (b) any person or persons who control the company mentioned in paragraph (a) above or who have had it under their control at any time in the period since company A ceased to be a member of the first group; or

• (c) any person or persons who have, at any time in that period, had under their control either—

• (i) a company which would have been a person falling within paragraph (b) above if it had continued to exist, or

• (ii) a company which would have been a person falling within this paragraph (whether by reference to a company which would have been a person falling within that paragraph or to a company or series of companies falling within this sub-paragraph).

• (2C) This section shall not have effect as respects any asset if, before the time when company A ceases to be a member of the group or, as the case may be, the second group, an event has already occurred by virtue of which the company falls by virtue of section 101A(3) to be treated as having sold and immediately reacquired the asset at the time specified in subsection (3) below.

• (2D) This section shall not have effect as respects any asset if, before the time when company A ceases to be a member of the group or, as the case may be, the second group, an event has already occurred by virtue of which the company falls by virtue of section 101C(3) to be treated as having sold and immediately reacquired the asset at the time specified in subsection (3) below.

• (3) If, when company A ceases to be a member of the group, company A, or an associated company also leaving the group, owns, otherwise than as trading stock—

• (a) the asset, or

• (b) property to which a chargeable gain has been carried forward from the asset on a replacement of business assets,

then, subject to subsection (4) below, company A shall be treated for all the purposes of this Act as if immediately after its acquisition of the asset it had sold, and immediately reacquired, the asset at market value at that time.

• (3A) Any chargeable gain or allowable loss which would otherwise accrue to company A on the sale referred to in subsection (3) does not so accrue if—

• (a) company A ceases to be a member of the group in consequence of—

• (i) a disposal of shares in company A or another member of the group made by a member of the group, or

• (ii) two or more such disposals,

• (b) either—

• (i) subsection (3B) applies to the disposal or, if there is more than one disposal, to at least one of them, or

• (ii) sub-paragraph (i) does not apply but had subsection (3B) applied to the disposal or, if there is more than one disposal, to each of them, any gain arising on the disposal or disposals would not have been a chargeable gain by virtue of Schedule 7AC, and

• (c) in the absence of this subsection, section 535 of CTA 2010 (UK REITS: exemption of gains) would not apply to the chargeable gain or allowable loss which would accrue to company A on the sale.

• (3B) This subsection applies to a disposal of shares if—

• (a) the company making the disposal is resident in the United Kingdom at the time of the disposal,

• (b) the shares are chargeable assets in relation to that company immediately before that time, or

• (c) any part of the chargeable gain or allowable loss accruing on the disposal is treated as a gain or loss accruing to a person by virtue of section 3 (attribution of gains to members of non-resident companies).

In this section “group disposal” means a disposal within subsection (3A)(a) to which this subsection applies and the company making the disposal is referred to as “the transferor company”.

• (3C) For the purposes of subsections (3A) and (3B), the question whether there is a disposal is to be determined ignoring section 127 (share reorganisations etc treated as not involving disposal).

• (3D) If subsection (3A) applies, any chargeable gain or allowable loss accruing to the transferor company on a group disposal (other than a group disposal to which section 127 applies) is to be calculated—