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There are various ways in which value can be taken out of assets. The value can be extracted as money or money’s worth, or it may be passed into other assets. Without special rules, transactions of this kind could be manipulated so that the passing of value is not subject to tax, yet allowable losses could arise on a subsequent disposal of the asset from which value has been stripped. This guidance note explains the ‘depreciatory transactions’ rules. These are anti-avoidance rules applicable to groups of companies where shares or securities in subsidiaries are sold out of capital gains groups and a loss arises on the disposal.

The depreciatory transaction rules may apply where, prior to a sale of a subsidiary on which a loss arises, either:

1. •

   an asset was transferred at no gain / no loss between group members

2. •

   there has been a dividend ‘strip’

The effect of the rules is to adjust losses on a ‘just and reasonable’ basis. They are considered in further detail below.

See Simon’s Taxes D2.350.