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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: interpretation - company, group, subgroup, holding company and 51% subsidiary


TCGA1992/Sch7AC/Para 26 explains what is meant for the purposes of the substantial shareholdings exemption legislation by ‘company’, ‘group’ and related expressions.

A company has the same meaning as in TCGA1992/S170(9), see CG45150. A group comprises the companies that would form a group if in the definition of a group of companies in TCGA1992/S170 references to ‘75% subsidiaries’ were replaced by references to ‘51% subsidiaries’. See CG45120 onwards for guidance on section 170. Note that a group of companies can include companies that are not resident in the United Kingdom. The holding company of a group is the company that TCGA1992/S170 describes as the ‘principal company’ of a group.

A 51% subsidiary has the meaning given to that phrase by ICTA1988/S838. Broadly speaking, a company is a 51% subsidiary of another company if the other company beneficially owns, directly or indirectly, more than 50% of the first company’s ordinary share capital.

Detailed guidance on the meaning of “shares” and “ordinary share capital” can be found in the Company Taxation Manual at CTM00511 to 00516.  For the purposes of Schedule 7AC share capital of a registered industrial and provident society is treated as ordinary share capital. Not all corporate bodies will have the equivalent of ordinary share capital.  Such companies cannot therefore be 51% subsidiaries of other companies.

The concept of a subgroup is relevant when considering whether the company whose shares have been disposed of qualifies for exemption. Suppose that a group’s structure is as follows, with all companies being wholly owned by the company above them:

Link to subgroup diagram

A company that owned shares in company X could sell those shares - that would be a disposal of shares in the holding company of a group. Company X could sell its shares in company B - that would be a simple disposal of shares in a company with no question of whether it was any sort of holding company. Or company X could sell its shares in company C. Company C has subsidiaries but is not the holding company of a group, as it is itself a 51% subsidiary of another company. The set of companies C, D and E is identified as a subgroup for the purposes of the substantial shareholdings exemption legislation. And company C is the holding company of that subgroup.

For companies incorporated outside the United Kingdom ‘group’ and ‘subsidiary’ are construed with any necessary modifications.