Taxes Consolidation Act 1997 section 621

Depreciatory transactions in group

Section 621 prevents the artificial manufacture of capital losses within a group of companies through depreciatory transactions that strip value from one group member's shares into another.

• Where a group company's assets are transferred to another group member for less than market value and the transferor is then disposed of, the resulting capital loss is restricted to the extent it was artificially created by the depreciatory transaction.
• A depreciatory transaction includes any disposal of assets at other than market value between group members, certain other intra-group transactions that materially reduce share values, and the cancellation of shares under section 84 of the Companies Act 2014.
• The loss is reduced to an amount the inspector (or, on appeal, the Appeal Commissioners) considers just and reasonable, so that the loss does not reflect diminution in value attributable to the depreciatory transaction.
• If a loss is restricted, a corresponding reduction may be made to any chargeable gain arising within 10 years on a disposal of shares in the company that benefited from the depreciatory transaction, but the total gain reduction cannot exceed the loss restriction.