Capital Gains Group Relief

Key facts

A capital gains group requires a 75% effective interest in ordinary share capital (direct or indirect).
Intra-group transfers are treated as made at no gain/no loss — the acquiring company inherits the original base cost.
A degrouping charge arises if a company leaves the group within 6 years of receiving an asset.
Pre-entry losses (losses accrued before a company joined the group) are restricted.
The rules apply to chargeable assets including property, shares, and intellectual property.

What Is a Capital Gains Group?

A capital gains group exists where a principal company (the ultimate parent) holds, directly or indirectly, a 75% effective interest in the ordinary share capital of another company (the subsidiary). Two subsidiaries of the same principal company are also members of the same capital gains group.^[1]

The 75% effective interest test differs from the group relief test in one important way: it looks at ordinary share capital, whereas group relief also considers economic ownership (profits and assets). In most groups, the same companies qualify for both reliefs.

Indirect holdings: If Parent holds 80% of Sub A, and Sub A holds 90% of Sub B, the effective interest in Sub B is 80% × 90% = 72%. This is below 75%, so Sub B is not in Parent’s capital gains group — even though Sub A and Sub B are in a group together.^[1]

No Gain / No Loss Transfers

When one group member transfers a chargeable asset to another group member, the transfer is treated as taking place at a value that produces no gain and no loss for the transferor. In practice, this means:^[1]

The acquiring company inherits the transferor’s original base cost (and any indexation frozen at December 2017)
No Corporation Tax charge arises on the transfer itself
When the acquiring company eventually sells the asset to an outsider, the gain or loss is calculated using the original cost, not the intra-group transfer value

This makes it possible to move assets around the group for commercial reasons — for example, consolidating properties into a property subsidiary — without triggering a tax charge.

Degrouping Charges

The no gain/no loss treatment is provisional. If a company leaves the group within 6 years of receiving a no-gain/no-loss asset, a degrouping charge may arise.^[1]

The departing company is treated as if it had sold and reacquired the asset at market value immediately before leaving the group. This crystallises the deferred gain (or loss) and brings it into charge. The resulting gain is reported on the company’s CT600 — you can prepare and submit the return online with HMRC-recognised software.

Scenario	Degrouping Charge?
Company leaves group within 6 years of intra-group transfer	Yes — gain taxed on the departing company
Company leaves group more than 6 years after transfer	No — the gain remains deferred
Entire group is sold (all companies leave together)	No — the companies remain in the same group relative to each other
Asset is sold to a third party before the company leaves	No — the gain is taxed on the disposal instead

Tip: In corporate transactions, always check whether the target company received any no-gain/no-loss assets within the previous 6 years. The degrouping charge can be a significant hidden cost in an acquisition.

Pre-Entry Losses

When a company joins a capital gains group, any unrealised capital losses that accrued before it joined (known as “pre-entry losses”) are subject to restrictions. They cannot be set against gains on assets that were already owned by other group members before the joining company arrived.^[2]

This prevents groups from acquiring loss-making companies solely to shelter existing gains.

Elections & Planning Points

Companies should be aware of several practical considerations:^[1]^[4]

Election to reallocate degrouping charges: Since 2011, a degrouping charge can be reallocated to another group company by joint election, which may be beneficial where the departing company has insufficient profits
Substantial Shareholding Exemption (SSE): If the conditions for SSE are met, the degrouping charge may itself be exempt — see SSE
Stamp Duty Land Tax: While intra-group transfers are relieved from SDLT (group relief), a degrouping SDLT charge can also arise if the company leaves the group within 3 years
Connected party rules: Disposals between group members are treated as between connected parties for capital gains purposes, but the no gain/no loss rule overrides this

Frequently Asked Questions

What is a no gain/no loss transfer?

When one company in a capital gains group transfers an asset to another group member, the transfer is treated as producing no gain and no loss. The acquiring company inherits the original base cost, deferring any tax until the asset leaves the group.

What is a degrouping charge?

A degrouping charge arises when a company leaves a capital gains group within 6 years of receiving an asset via a no gain/no loss transfer. The company is treated as having sold and reacquired the asset at market value immediately before leaving the group.

What is the ownership threshold for a capital gains group?

A capital gains group requires the principal company to hold a 75% effective interest in the ordinary share capital of the subsidiary, either directly or indirectly.

What are pre-entry capital losses?

Pre-entry losses are unrealised capital losses that accrued before a company joined the group. They are restricted and cannot be set against gains on assets already owned by other group members, preventing groups from acquiring loss-making companies to shelter existing gains.

Sources

Company Taxation Manual: CTM46000 – Groups: capital gains — GOV.UK
Capital Gains Manual: CG45300 – Groups of companies — GOV.UK
Corporation Tax: group relief — GOV.UK
Chargeable gains for companies — GOV.UK