Corporation tax on gains from one company to another

Corporation tax on gains from one company to...

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If two UK resident companies are under common ownership and one wants to sell it's trade to the other would it have to sell that trade at market value (in the same way that related individuals would have to) or would this be covered by the transfer pricing exemption for small companies?

The specific situation is that one company has two trades. They're seeking an SEIS investment in the newer trade (15 months old) but their existing company doesn't qualify due to the existence of a former trade (now ceased but over 10 years old). The solution would be to transfer the new trade to a new company but this wouldn't work if that gave rise to a chargeable gain in the old company.

Any thoughts much appreciated.

Replies (11)

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By johngroganjga
07th Jul 2015 11:05

You fundamentally misunderstand the market value rule. It does not require transactions to take place at market value. It simply deems them for tax purposes to have taken place at market value.

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By User deleted
07th Jul 2015 11:11

Group

Assets transferred within a 100% group can been effected at Nil Gain Nil Loss for Corporation tax purposes - thus giving no tax charge whatsoever.

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By chaddesley
07th Jul 2015 11:12

Hi John.  Thanks for your

Hi John.  Thanks for your comment.  Sorry, I probably didn't word the question as well as I should have. I realise that it's for tax purposes only that market value has to be applied but that doesn't get around the issue that (if market value were applied for tax purposes) a chargeable gain would arise for the selling company. It may be that there's no solution to this but any suggestions would be appreciated.

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By johngroganjga
07th Jul 2015 11:13

Yes but there is no group here unless the common owner is a company, which we would probably have been told if it was.

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By User deleted
07th Jul 2015 11:15

Yes, true

And thinking about it - it could perhaps scupper the SEIS intentions as the shareholdings are not held personally

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By chaddesley
07th Jul 2015 11:18

That's exactly right.  The

That's exactly right.  The common ownership would have to be by an individual otherwise no SEIS.

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By Portia Nina Levin
07th Jul 2015 12:08

TCGA 1992, section 139

You can use TCGA 1992, section 139 to secure nil gain/nil loss treatment. A clearance would be advisable, but making the transferor company SEIS compliant in order to secure investment funding seems to me to be a bona fide commercial reason, on the face of it.

However, I think you can also achieve the same objective by dropping the old trade down into a wholly-owned subsidiary.

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By chaddesley
07th Jul 2015 12:27

Thanks Portia

Very helpful - I'll take a look in to that.

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By Portia Nina Levin
07th Jul 2015 12:31

On reflection

Dropping the old trade into a subsidiary does not work. You will need to transfer the new trade to a separate company, which would then be the SEIS vehicle.

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By User deleted
07th Jul 2015 18:11

The term
Just a thought, the term 'old trade' should not be used anywhere near an SEIS application - as the whole point of the scheme is that it relates in full to new trades.
So if you seeking clearance from HMRC as Portia suggested - do not mention "old trade"

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By chaddesley
08th Jul 2015 07:32

Agreed BananaMan
...but it's the new trade that we're seeking SEIS for. That's why we need to seperate it out from the old trade, because the rules prohibit the company having undertaken any other trade (old or new) other than the one being invested in.

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