Within a capital gains group, assets pass between UK companies at no gain and no loss under section 171 TCGA 1992, so tax is deferred until the asset leaves the group. If the company that received an asset leaves the group within six years while still holding it, section 179 imposes a degrouping charge based on the asset’s market value at the date of the intra group transfer.

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What counts as a capital gains group?

HMRC’s Capital Gains Manual at CG45100 describes a capital gains group as a principal company and its 75% subsidiaries, provided they are also effective 51% subsidiaries of the principal company. The 75% test looks at ordinary share capital; the 51% test looks through to economic entitlement to profits and assets. A company cannot belong to more than one group, and there are tiebreaker rules in section 170 TCGA 1992 to stop that happening. Winding up a company does not in itself end group relationships (section 170(11)).

This definition is not the same as the one used for group relief for trading losses, and for the substantial shareholding exemption the 75% reference is read as 51% (CG45100). Check which definition a rule uses before assuming two companies are grouped.

How do assets move tax free inside the group?

Under section 171(1) TCGA 1992, a disposal of an asset from one group member to another is treated as made for whatever consideration gives neither a gain nor a loss (CG45300). The transferor has neither gain nor loss and the receiving company takes over the transferor’s capital gains cost (CG45305). Because non UK resident companies can be group members, section 171(1A) limits the rule to cases where the asset stays within the charge to UK corporation tax: both companies must be UK resident, or chargeable on a gain on that asset (CG45310). Capital losses cannot be surrendered by group relief, so moving assets is how a group brings its gains and losses together.

Since 2000 a group can also reach the same result without moving anything. A joint election under section 171A lets a gain or loss that accrues to one member be treated as accruing to another, so a gain in one company can be matched with a capital loss in another (CG45355). This saves the legal and stamp tax costs of a preliminary transfer, and the election can be made after the sale to the third party. Our page on capital gains in a company covers how the gain itself is computed.

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Why does a degrouping charge exist?

Without it, a group could transfer a valuable asset into a fresh subsidiary at no gain, then sell the shares in that subsidiary instead of the asset. HMRC calls this the envelope trick (CG45400). The degrouping charge, first introduced in 1968 and now in section 179 TCGA 1992, counters it by taxing the gain that was held over on the intra group transfer when the asset leaves the group inside the shares of the company that holds it. HMRC notes that the charge can be triggered by entirely commercial transfers, not only tax driven ones.

When is the degrouping charge triggered?

Section 179(1) applies where all of these are true:

  • company A acquired an asset from company B while both were members of the same group;
  • company A ceases to be a member of that group within six years after that acquisition; and
  • when it leaves, company A, or an associated company leaving at the same time, still owns the asset (otherwise than as trading stock) or an asset into which a gain on it was rolled over (section 179(3)).

If those conditions are met, company A is treated as if, immediately after acquiring the asset, it had sold and reacquired it at market value. The gain is therefore measured at the date of the original intra group transfer, not the date of leaving. Growth in value after the transfer is not caught by the charge; it stays in the asset’s new base cost.

Which exits do not trigger it?

  • Sub groups leaving together. If two companies leave at the same time and the transfer was between them while they were both 75% and effective 51% subsidiaries of the same company, or one was such a subsidiary of the other, there is no charge (section 179(2), (2ZA) and (2ZB)). The charge can revive if that sub group later breaks up, or loses its connection with the original group (section 179(2A)).
  • Another member ceasing to exist. A company is not treated as leaving where it ceases to be a member only because another member has ceased to exist (section 179(1)).
  • Exempt demergers. No charge arises where a company leaves only because of an exempt distribution under the demerger rules (CG45620). See our page on demergers.
  • Takeovers of the whole group. Where the principal company itself joins another group, the groups are treated as the same and any charge is deferred (section 179(5) to (8), CG45410).

Who pays the charge, and can SSE remove it?

Since Finance Act 2011, where company A leaves the group because a group member disposes of shares, the degrouping gain or loss does not accrue to company A at all. Instead, section 179(3A) and (3D) add the gain to the consideration for the share disposal by the selling group company, or treat a loss as an extra deduction (CG45420). The practical effect is that if the share sale is covered by the substantial shareholding exemption, the degrouping gain is exempt too. These rules apply to companies leaving on or after 19 July 2011 (CG45400).

Where company A leaves in some other way, for example because the group’s interest is diluted without a share disposal treated as such, the deemed gain accrues to company A itself. Section 179(4) treats it as accruing at the later of the start of the accounting period in which company A leaves and the deemed reacquisition. A gain or loss accruing to a group company can then be reallocated within the group by election (CG45400, CG45355). Section 179ZA also allows a claim to reduce the charge to the extent that the gain inherent in the asset is reflected in the gain on the shares disposed of (CG45400).

What does a degrouping charge look like in numbers?

Illustration only. Parent Ltd owns all the shares in Sub1 Ltd and Sub2 Ltd. In year one Sub1 transfers a warehouse to Sub2. Sub1’s base cost is £200,000 and the market value at transfer is £500,000. Under section 171 Sub2 takes the warehouse at £200,000. Indexation is ignored for simplicity.

Step Amount
Three years later Parent sells all of Sub2 for £900,000
Degrouping gain: market value at transfer less Sub2’s inherited cost £300,000
Parent’s consideration for the shares, increased under section 179(3D) £1,200,000
Parent’s base cost in the Sub2 shares £100,000
Parent’s gain on the share sale £1,100,000

If Parent’s sale qualifies for the substantial shareholding exemption, none of the £1,100,000 is chargeable, including the degrouping element. If it does not qualify, the whole amount is taxed in Parent. Either way, Sub2’s base cost in the warehouse becomes £500,000 for any future disposal by the buyer.

Do other taxes have their own degrouping rules?

Yes, and they run on different clocks. Intangible fixed assets transferred tax neutrally under section 775 CTA 2009 are subject to a parallel charge in section 780 CTA 2009 if the transferee leaves the group within six years while holding the asset. For Stamp Duty Land Tax, group relief on a property purchase is withdrawn under Schedule 7 paragraph 3 Finance Act 2003 if the purchaser leaves the vendor’s group within three years of the effective date, or later under arrangements made within those three years, while it still holds the property. See our guide to Stamp Duty Land Tax.

What mistakes come up in practice?

  • Not keeping a register of intra group transfers with dates and market values, so the six year window cannot be tracked at the point of sale.
  • Forgetting rolled over gains: section 179(3)(b) catches replacement assets into which a gain on the transferred asset was rolled over under rollover relief.
  • Assuming SSE covers everything without checking whether the seller actually meets the SSE conditions at the sale date.
  • Overlooking the SDLT clawback and the intangibles charge, which are not removed by SSE in the same way.
  • Moving assets out of a target just before a sale, then later moving them back, without considering whether that unwinding is itself a group transfer with its own six year window.
  • Treating trading stock as subject to the charge: section 179(3) excludes assets held as trading stock.

Hive downs, where a trade and its assets move into a new subsidiary before that subsidiary is sold, are the most common place these rules meet. Our page on hive downs and transfers of trade covers the trading losses and capital allowances side.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.