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Six-year limit removed for depreciatory transactions within a group.

Legislation will be introduced in Finance Bill 2017/18 to remove the six-year limit imposed by section 176(1) of the Taxation of Chargeable Gains Act 1992 (TCGA) to prevent companies from claiming for loss arising as a result of an earlier depreciatory transaction.

A depreciatory transaction is one that takes value out of shares, which might be by transferring the assets of a company to another company within a group for no or little cost. This reduces the value of the shares but without any economic loss to the group. When the shares are disposed of (by liquidating the company or making a negligible value claim), the legislation requires that previous depreciatory transactions are adjusted for in computing any loss on disposal.

Currently there is a time limit of six years, so depreciatory transactions before that are not taken into account. Removal of the six-year rule means that companies will need to consider the history of the shares and will be required to adjust for any prior depreciatory transactions when calculating a loss.

This measure will ensure companies cannot prevent the depreciatory transaction rules applying by simply holding on to a company that no longer has any value for six years before claiming an inflated amount of loss relief.

Article from ACCA In Practice