ICTA88/S245B is another provision limiting the right of a company to:
Section 245B applies where the company's chargeable profits
include a chargeable gain accruing on the disposal of an asset
acquired from a company in its new group, and the disposal takes
place within three years of the change of ownership.
The section applies when all of the following circumstances apply:
In calculating the surplus ACT at the time of the change of ownership (second bullet above), the accounting period in which the change in ownership occurs is treated as two separate accounting periods:
Where Section 245B applies, there is a restriction to the amount
of ACT which can be set against the company's CT liability for the
accounting period in which the chargeable gain is realised. The
restriction is achieved by a reduction to the limit imposed by
ICTA88/S239 (2). The limit for accounting periods ending on or
after 17 March 1987 is at
The reduction is the lesser of:
Where an asset has changed its nature between the acquisition and disposal by the company, Section 245B treats the acquired asset and disposed asset as being the same asset if the value of the disposed asset is derived in whole or in part from the acquired asset. This applies in particular where a lease has merged with its freehold reversion on the acquisition by the lessee of the reversion.
All the issued share capital of Company C is bought by a limited
company, which is a member of the Company W group of companies, on
1 April 1991. So from 1 April 1991 Company C is a member of the
Company W group. Company C's accounting period is the year to 31
March. At 1 April 1991 Company C has surplus ACT to carry forward
of £11,500. It does not have CT liabilities for the years
ended 31 March 1992 and 31 March 1993. In June 1991 Company C
acquires a painting from Company D, which is a member of the
Company W group, on a no gain/no loss basis under TCGA92/S171 (1).
Company C disposes of the painting on 1 February 1994, and realises
a CG of £40,000. The company has other profits of
£16,000, and so the amount of profits chargeable to CT for the
year ended 31 March 1994 is £56,000. All the circumstances for
the application of ICTA88/S245B are present. There are three
associated companies in the Company W group.
Lower relevant maximum amount for Company C for the year ended 31 March 1994 = 1/4 x £250,000 = £62,500.
Company C's profits of £56,000 are less than £62,500. This means Company C's profits of £56,000 are charged at the small companies rate of 25%, which gives a CT liability of £14,000. The ACT rate for the year ended 31 March 1994 is 9/31. The ACT that the company can set against the CT liability of £14,000 is limited by ICTA88/S239 (2) to £12,600 as follows.
The restriction is that the limit is reduced by the lesser of
the surplus ACT at the time of the change of ownership of
£11,500, and £9,000. The £9,000 is the amount of ACT
(9/31 x £31,000 = £9,000) that would be payable on a
distribution which, together with the ACT, equals the chargeable
gain on the asset of £40,000. So even though the surplus ACT
of £11,500 is less than the ICTA88/S239 (2) limit of
£12,600, the company can only set off surplus ACT of
£3,600 against its CT liability for the year ended 31 March
(This figure equals the ICTA88/S239 (2) limit applied to the profits excluding the chargeable gain concerned.)