½Û×ÓÊÓƵ

D2.350 Group capital gains—depreciatory transactions

Specific provisions¹ operate so as to restrict an allowable loss on a disposal of shares or securities in a company (referred to below as the 'ultimate disposal') where it can be shown that the loss was caused by an earlier 'depreciatory transaction'.

Example 1

R Ltd acquires all the shares in F Ltd for £100,000, this being represented by underlying assets (including goodwill) in the company to this value. Immediately after acquisition, R Ltd procures that F Ltd transfers to it all of its assets intra-group for a nominal price of, say, £1. It then sells the shares in F Ltd to a third party for £1, thereby creating (ignoring the effect of the depreciatory transactions rules) a capital loss of some £99,999.

The provisions apply where in relation to a disposal of shares in, or securities of, a company²:

1. Ìý

   •ÌýÌýÌýÌý the value of the shares or securities has been materially reduced

2. Ìý

   •ÌýÌýÌýÌý the reduction was caused by a depreciatory transaction, and

3. Ìý

   •ÌýÌýÌýÌý the original