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HMRC internal manual

Capital Gains Manual

Company reconstructions: meaning of business: S136

In order to be a scheme of reconstruction meeting the 3rd condition of Sch 5AA, a scheme must involve the transfer of a company’s business. Whether a company carries on a business is a question of fact. The holding and managing of a portfolio of investments can amount to a business. Any transfer of the whole or part of such a business under a scheme of reconstruction must include not only the investments themselves but also the requirement to manage them. A company that only holds, rather than manages, investments might not be considered to have a business to be transferred. Where the investment is a holding of shares in a trading subsidiary, Paragraph 4 (3) Sch 5AA allows a controlling holding to be treated as a part of the parent company’s business.

If, in the example at 52707C, the retail business of Company A was held in a controlled subsidiary, Company A could transfer its shares in that subsidiary to Company B and meet the 3rd condition of Sch 5AA.