Taxes Consolidation Act 1997 Schedule 25A paragraph 7

Degrouping: time when deemed sale and reacquisition treated as taking place

Paragraph 7 provides that where a degrouping charge under section 623(4) would otherwise arise, but the gain would have been exempt under section 626B (the participation exemption), the deemed sale and reacquisition is treated as taking place immediately before the time of degrouping, thereby allowing the exemption to apply.

• Where a company leaves a group holding an asset transferred within the group, section 623(4) normally treats it as having sold and reacquired the asset, crystallising any latent gain.
• If the company owning the asset at the time of degrouping had disposed of it immediately beforehand, and the resulting gain would have been exempt under section 626B (participation exemption for holdings of 5% or more), the degrouping charge is adjusted.
• The adjustment treats the deemed sale and reacquisition as taking place immediately before the time of degrouping, rather than at the time the asset was originally acquired within the group.
• The practical effect is that the section 626B exemption can shelter the degrouping gain, provided the conditions for exemption are met at the point the company ceases to be a group member.