{"id":176595,"date":"2022-10-07T17:11:59","date_gmt":"2022-10-07T16:11:59","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=176595"},"modified":"2025-07-02T00:38:52","modified_gmt":"2025-07-01T23:38:52","slug":"tax-transactions-group-companies","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/tax-transactions-group-companies\/","title":{"rendered":"Tax Implications of Transactions Between Group Companies in the Same Tax Group in England"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">When you run a business, you may decide to have a group of companies. Notably, there are tax implications from transactions between group companies, and knowing these are essential to avoid legal consequences. This article will explore the position of two main types of intra-group transfers between companies in the same tax group: income assets and capital assets transfers.&nbsp;<\/span><\/p>\n\n\n\n<p>As<span style=\"font-weight: 400\"> a business owner, you must be <a href=\"https:\/\/www.gov.uk\/browse\/business\/business-tax\">clear on the tax implications<\/a> for transactions between group companies if you have these as part of your business. Tax implications are legal duties for business owners, so it is essential to get them right.&nbsp;<\/span><\/p>\n\n\n\n<p>This article is Part Two of our series on tax law for group reorganisations and intra-company transactions. Part One provided an overview of the <a href=\"https:\/\/legalvision.co.uk\/corporations\/taxation-intra-group-transfers\/\">critical legal and tax concepts<\/a> that arise during group reorganisations. This article follows on from that, assuming you have read the former article. If you have not, you may find it helpful to read it before starting on this one.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">An Example: ConsultCo&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Imagine ConsultCo has three business divisions:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">management consulting, which is its most established and profitable division;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">recruitment consulting; and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">ConsultCo Software Solutions (\u201cCCSS\u201d) provides software solutions to third parties and services to the entire business group\u2019s internal IT and software needs.&nbsp;<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">Each division is its own subsidiary company, the shares of which are owned by a parent company (\u201cConsult MidCo\u201d), which a holding company owns. CCSS is part-owned by another company called TechCo, which holds 49% of the company; Consult Co owns the rest. The subsidiary company runs CCSS\u2019s operations, of which MidCo owns 80%.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Consult MidCo owns most of the business\u2019 valuable assets, which it either leases or provides on the licence as needed to the group subsidiaries. The exceptions are specific branding and intellectual property rights related to CCSS, which are all owned by CCSS\u2019s HoldCo.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">For clarity, below is a structure chart which sets out the group structure and extent of third-party ownership in CCSS.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"720\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/10\/10024942\/tax-example-1-1024x720.png\" alt=\"\" class=\"wp-image-176665\" srcset=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/10\/10024942\/tax-example-1-1024x720.png 1024w, https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/10\/10024942\/tax-example-1-300x211.png 300w, https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/10\/10024942\/tax-example-1-768x540.png 768w, https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/10\/10024942\/tax-example-1.png 1171w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Tax Groups&nbsp;<\/span><\/h2>\n\n\n\n<p>In terms of tax implications for transactions between group companies<span style=\"font-weight: 400\">, the law may recognise both companies as the same entity for tax purposes if a company is in the same tax group. If two companies are not part of the same tax group, then any transaction between them will be treated like a transaction with a third party. In most cases, this means your business will have to pay tax.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Whether or not two or more group companies are part of the same tax group depends on the following:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the kind of transaction in question; and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the extent of relief or liability the law permits.&nbsp;<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">Different transactions (or kinds of relief) impose different requirements for group companies to acquire the same tax group status. In other words, the law may recognise ConsultCo Software Solutions Ltd and Consult MidCo Ltd as part of the same tax group for one transaction and not the other, depending on what you transfer.&nbsp;<\/span><\/p>\n\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/4\/2022\/09\/06164254\/uk-startup-manual-290x410-1.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">UK Startup Manual<\/div>\n            <div class=\"body-text\">\n                <p>LegalVision&#8217;s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.<\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.uk\/uk-startup-manual.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Identifying a Tax Group&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">To determine if two or more companies are part of the same tax group, there are four questions to ask:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Is ownership direct or indirect?<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Which shareholding threshold applies to the parent company?<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Does the parent company beneficially own the shares in the subsidiary?<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Does it pass the economic ownership test?&nbsp;<\/span><\/li><\/ol>\n\n\n\n<p><span style=\"font-weight: 400\">Regarding Question 2, the three most essential shareholding thresholds for tax purposes are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">51% subsidiary;&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">75% subsidiary; and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">90% subsidiary.&nbsp;<\/span><\/li><\/ul>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n 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The exception is when both companies are in the same tax group.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Income Assets<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">An income asset is usually any <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/difference-share-asset-sale\/\"><span style=\"font-weight: 400\">asset your business produces to sell<\/span><\/a><span style=\"font-weight: 400\"> to customers or clients. The simplest example would be the goods a manufacturer produces for its customers.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Group Relief&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Group relief is one of the most common income assets businesses transfer between group companies. For legal and taxation purposes, group relief is considered an income asset.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">As a general rule of tax law, <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/capital-gains-tax\/\"><span style=\"font-weight: 400\">a company does not pay tax<\/span><\/a><span style=\"font-weight: 400\"> when its losses exceed its gains. Group relief, however, allows a company that has lost money through trading in a particular accounting period (i.e. March 2022 to March 2023) to transfer its losses to another group company.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If Recruitment Consulting Co Ltd (RCCo) lost \u00a350,000 in one accounting year, whereas Management Consulting Co Ltd (MCCo)&nbsp; made \u00a3200,000 in profit and they are in the same tax group, RCCo can transfer this income asset \u2014 the group relief \u2014 to the wider tax group to offset MCCo&#8217;s tax liability. The effect is as if MCCo only made a profit of \u00a3150,000.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">In this case, the law calls RCCo the &#8220;surrendering company&#8221; and MCCo, the &#8220;claimant&#8221;.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Eligibility&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">The surrendering company must either be:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">a 75% subsidiary of the claimant company; or&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">both the claimant and subsidiary companies must be 75% subsidiary of a third.&nbsp;<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">In ConsultCo\u2019s case, RCCO could transfer its group relief to MCCO (and vice versa) because they are a 75% subsidiary, as MidCo owns 100% of shares in both. CCSS HoldCo could not transfer any loss through group relief, though the CCSS subsidiary could because MidCo owns 80% of the shares in the company.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Capital Assets&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A capital asset is any significant piece of your business property. Common examples include land, shares, buildings, and equipment.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If they are in the same tax group, transferring a capital asset between one group company to another will be treated as tax neutral. To be part of the same tax group, there must be:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">a principal company (Consult HoldCo Ltd);<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">that owns a 75% subsidiary (MidCo); and&nbsp;<\/span><\/li><li style=\"font-weight: 400\"><span style=\"font-weight: 400\">also owns a 75% subsidiary (MCCO, RCCO, and ConsultCo Software Solutions Ltd, but <\/span><i><span style=\"font-weight: 400\">not <\/span><\/i><span style=\"font-weight: 400\">CCSO HoldCo)&#8230; and so on.<\/span><\/li><\/ul>\n\n\n\n<p><span style=\"font-weight: 400\">In ConsultCo\u2019s case, the recruitment and consulting subsidiaries can move assets freely up to MidCo and HoldCo and directly to one another. CCSO HoldCo is not part of the tax group because it is not 75% of MidCo.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Further Considerations&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">A group subsidiary will not form part of the tax group for capital assets if the principal\u2019s indirect shareholding is less than 51%.\u00a0<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">Therefore, if Management Consulting Co Ltd owned a series of other subsidiaries, as represented in the chart below, MCCo A and MCCo B would be part of the principal company\u2019s (Consult HoldCo) tax group. This is because the principal\u2019s shareholding in MCCo A is indirectly 75% and 56.25% in MCCo B (75% x 75% = 56.25%, which is greater than 51%).&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">However, MCCo is not part of the tax group because HoldCo\u2019s indirect holding is 42.18%. In this case, MCCo may owe tax if it transfers a capital asset to one of the companies in the tax group.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Degrouping Group Companies&nbsp;<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">If&nbsp; ConsultCo sold off its management consulting division a year after transferring substantial capital assets to MidCo, by \u201cdegrouping\u201d these companies, a tax liability may arise. The law surrounding liability for a degrouping gain or loss is complex, and we recommend seeking legal advice on it.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Intangible Property&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">If you intend to transfer intellectual property rights or loan relationships to a group company, the law treats these as broadly similar to capital assets. Therefore, provided they are of the same tax group, the transfer is tax neutral. There can, however, be slight variations, so you should always seek proper advice.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">The law surrounding potential tax liability for intra-group transfers and reorganisations is complex. Generally, provided two group companies are part of the same tax group, the law considers the transaction tax neutral, so no liability arises. What makes up a tax group depends on the kind of transaction in question, and there are different rules for income assets and capital assets.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need help with the tax implications of transactions between group companies in the same tax group in England, our experienced <\/span><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\"><span style=\"font-weight: 400\">corproate lawyers<\/span><\/a><span style=\"font-weight: 400\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1665148021827\"><strong class=\"schema-faq-question\"><strong>What is a tax group?<\/strong><\/strong> <p class=\"schema-faq-answer\">In the context of an intra-group transfer, companies that are a part of the same tax group do not owe any taxes on the disposal of their assets if they transfer them to another member of the same tax group.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1665148048548\"><strong class=\"schema-faq-question\"><strong>How do I know which group companies are part of the same tax group?<\/strong><\/strong> <p class=\"schema-faq-answer\">The rules depend on which sort of asset you are transferring.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/176595\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/tax-transactions-group-companies\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Tax Implications of Transactions Between Group Companies in the Same Tax Group in England\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When you run a business, you may decide to have a group of companies. Notably, there are tax implications from transactions between group companies, and knowing these are essential to avoid legal consequences. This article will explore the position of two main types of intra-group transfers between companies in the same tax group: income assets<a href=\"https:\/\/legalvision.co.uk\/corporations\/tax-transactions-group-companies\/\">Continue reading <span class=\"sr-only\">&#8220;Tax Implications of Transactions Between Group Companies in the Same Tax Group in England&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13522,"featured_media":3255,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"2726,172762,176495,176044,175645,175363","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[21,176,198,729],"class_list":["post-176595","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-medium-business","tag-corporate-transactions","tag-tax-liabilities","tag-tax-liability"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Tax Implications Transactions Group Companies | LegalVision UK<\/title>\n<meta name=\"description\" content=\"If you have group companies, you need to know the tax implications of transactions between them. 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