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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: introduction - brief summary of basic structure and meaning of general terms used


The substantial shareholdings exemption regime provides that a gain on a disposal by a company of shares (or an interest in shares, or certain assets related to shares) will not normally be a chargeable gain provided two conditions are met. For disposals before 1 April 2017, there were three conditions.

  • The ‘investing company’ must have held shares in the ‘investee company’ in such number, and for such time, that the shareholding satisfies ‘the substantial shareholding requirement’.
  • The ‘investing company requirement’ (the company making the disposal) must meet certain ‘trading’ conditions. This condition was withdrawn by F(2)A 2017 for disposals on or after 1 April 2017.
  • The ‘investee company requirement’ (the company whose shares are being disposed of - note that although ‘investee company’ is used to identify that company in this guidance the name actually given to that company in the legislation is ‘the company invested in’) must meet similar ‘trading’ conditions. An exception to this condition was introduced by F(2)A 2017 for investments held through an investor company which is itself owned by qualifying institutional investors (“QIIs”). Where 25% or more of the Ordinary Share Capital of the company holding the shares being disposed of is owned by QIIs, the investee company requirement does not apply to the disposal, leaving only the substantial shareholding requirement.  This exception takes effect for disposals on or after 1 April 2017. More information about Qualifying Institutional Investors can be found at CG53011.

However, a gain on a disposal is not exempted by this legislation

  • if the disposal is a no gain/no loss disposal, or
  • if the gain would not have been a chargeable gain because of some other provision, or
  • if the gain arises to an insurance company on a certain type of deemed disposal, or
  • should an anti-avoidance rule apply.

No claim is required - if the conditions for the relief are met a gain is exempt. The general rule in TCGA1992/S16(2) that where a gain is not a chargeable gain a loss is not an allowable loss applies (see CG15800). So a loss on a disposal of shares by a company where the conditions for the relief are met is not an allowable loss.

Part 4 of TCGA 1992/Sch7AC/paras 26 to 31 explains what is meant by other general expressions used in the substantial shareholdings exemption legislation - see the following paragraphs for definitions.

Page Title
CG53006 Company, group, subgroup, holding company, 51% subsidiary
CG53007 Trade
CG53008 Twelve month period
CG53009 Interest in shares
CG53010 Asset related to shares
CG53012 Qualifying Institutional Investor


TCGA1992/Sch7AC/Para 31 contains an index that includes other definitions and explanations which appear in Schedule 7AC.