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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: introduction - the legislation

FA02/S44, TCGA92/S192A, FA02/SCH8, TCGA92/SCH7AC & FA2011

Section 44 and Schedule 8 Finance Act 2002 introduced the substantial shareholdings exemption legislation. Subsection (1) of section 44 Finance Act 2002 inserted a new section 192A into TCGA 1992. Section 192A TCGA 1992 simply provides that Schedule 7AC TCGA 1992 has effect.

Section 44(2) Finance Act 2002 provides that Schedule 8 Finance Act 2002 has effect. That Schedule is in two Parts:

  • Part 1 of Schedule 8 contains paragraph 1 of that Schedule which inserted Schedule 7AC into TCGA 1992. Schedule 7AC contains the detailed rules of the substantial shareholdings exemption regime.
  • Part 2 of Schedule 8 contains paragraphs 2 to 5 of that Schedule. They make the consequential amendments to other legislation that are needed because of the substantial shareholdings exemption (see CG53250).

Subsections (3) to (5) of section 44 Finance Act 2002 contain the commencement rules for the substantial shareholdings legislation (see CG53065).


FA2011/Sch10/Para6 inserts into Schedule 7AC a new paragraph 15A and new sub-paragraphs 19 (2A), (2B) and (2C). These extend the scope of the substantial shareholdings exemption to encompass certain companies (who may not previously have qualified) who may have operated numerous trades as divisions, or elements of a single trading operation across a number of companies that also perform the same function in other group trades - see CG53080C.

F(2)A 2017

F(2)A 2017/S27  introduced simplifications to the SSE regime for disposals on or after 1 April 2017.  The requirement for the company making the disposal to satisfy the conditions of Sch7ACTCGA92/Para 18 is removed, and Para 18 repealed.  The investing company no longer has to be a sole trading company, or a member of a trading group, at any time before or after the disposal.

S27 also removes the general requirement that the company whose shares are disposed of must be trading immediately after the disposal.  Sch7AC TCGA1992/Para 19(1)(b) is amended by the insertion of Para 19(1A) to provide that the post-disposal trading test only applies where the disposal is to a connected party, or where the substantial shareholding test is only passed through the operation of Sch15A – SEE CG53080

The final change introduced by Para 27 is to amend Sch7AC TCGA1992/Para7 (“the substantial shareholding requirement”) to extend the period during which a the twelve month holding period condition can be met from two years to six years prior to the date of disposal. This change means that companies can now make an exempt disposal of shares up to five years after their interest in the company invested in falls below 10%  – SEE CG53078


S28 of F(2)A 2017 extends the exemption to companies owned by a class of investor known as the Qualifying Institutional Investor or “QII”.  Where a company is at least partly owned by QIIs then

  • The exemption may also apply to disposal of shares in non-trading companies, and
  • The exemption may apply where the holding is less than 10% provided it cost at least £20m.

S28 inserts new Sch7AC TCGA1992/Para30A which defines seven classes of entities included in the definition of Qualifying Institutional Investor. The entities included are those which would be exempted from UK tax on their chargeable gains if they held the shares being disposed of directly.  Para 30A(2) provides for further changes and amendments to the list of QIIs to be made by way of regulation.  –SEE CG53080

S28 F(2)A 2017 introduces two new paragraphs into Sch7AC TCGA1992 - Paras 3A and 3B.  Para 3A takes effect where at least 25% of the ordinary share capital in the company making the share disposal is owned by one or more Qualifying Institutional Investor, and provides that the exemption still applies even where the requirement in Para19 (the investee trading test) is not met. Where the QII ownership is 80% or more, the entire gain or loss is exempt, and where the QII ownership is from 25% to 80% then a proportionate amount of the gain or loss is exempt. Where QII ownership  is below 25%, the new rules for QIIs will not apply to the disposal. Para 3B sets out in detail what is meant by “owned” by a QII.

F(2)A 2017  also modifies the substantial shareholding condition for disposals by companies owned 25% or more by QIIs. Sch7AC TCGA1992/Para8A applies in these circumstances to define as a “substantial shareholding” a holding which, while being less than 10% of the total ordinary share capital, had a cost of acquisition exceeding £20m in total (whether acquired in one transaction or more)  - SEE CG53070.