The legislative response to the ‘enveloping’ problem
(
CIRD40505) is the adjustment on
companies leaving groups dealt with in FA02/SCH29/PARA58 - 70. The
broad effect of these provisions is to recognise a gain or loss
deferred on an earlier tax-neutral disposal if the asset in
question leaves the group otherwise than by a direct disposal of
the asset. The rules achieve this by creating a deemed disposal at
market value. The company leaving the group makes a deemed disposal
and reacquisition of the asset at market value immediately after
the time it acquired the asset from another group company.
The event that triggers a degrouping adjustment is a company
ceasing to be a member of a group. But the amount of the gain or
loss is determined by reference to a deemed disposal immediately
following the acquisition of the asset from another group member,
and this may have taken place up to six years previously.
Although the calculation of any gain or loss on disposal is
calculated by reference to the market value of the asset at the
time immediately following the disposal by a group member to the
transferee company, the taxable credit or deductible debit
resulting is treated as though it arose immediately prior to the
transferee company leaving the group.
There are separate rules providing protections against
degrouping adjustments where new groups are formed as a result of
bona fide mergers, exempt distributions, or the principal company
becoming a member of another group, and more detailed rules on
various aspects, see
CIRD40500 for a list of the relevant
pages.
