Taxation of Chargeable Gains Act 1992 section 31

Disposal of shares or securities by a company

Section 31 is a targeted anti-avoidance rule for corporation tax that adjusts the disposal consideration for shares or securities where arrangements have been made to materially reduce their value in order to obtain a tax advantage.

• Where arrangements materially reduce the value of shares, securities or a relevant group asset, and a main purpose is to obtain a corporation tax advantage on chargeable gains, the disposal consideration is increased by a just and reasonable amount to counteract the advantage
• The rule catches value shifting through any group member's assets, preventing avoidance by transferring a depleted target company into another group company before sale (known as "enveloping")
• The rule does not apply where the arrangements consist solely of making an exempt distribution, and any adjustment takes into account the overall corporation tax consequences of the arrangements
• The provision also creates a deemed disposal where the value of a target company is reduced by tax-motivated arrangements before shares are issued or have their rights altered, and it extends to situations where a disposal precedes acquisition by treating value increases in the same way as reductions