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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: introduction - the substantial shareholding requirement


Part 2 of TCGA1992/Sch7AC/Paras 7 to 17 contains the rules relating to ‘the substantial shareholding requirement’.

TCGA1992/Sch7AC/Para 7 lays down what is necessary for shares held by a company to satisfy the substantial shareholding requirement. There are two aspects to this:

  • First, the shareholding must be of a certain size for it to be a ‘substantial shareholding’, as defined in TCGA1992/Sch7AC/Para 8. Broadly speaking, the investing company must hold at least 10% of the investee company’s ordinary share capital. It must also be entitled to at least 10% of the profits and assets available for distribution to equity holders by the investee company.
  • An exception to this requirement, for disposals of shares by companies on or after 1 April 2017 who are themselves owned by Qualifying Institutional Investors, was introduced by F(2)A 2017. Where the QII holding conditions are met, a shareholding of £20m can comprise a substantial shareholding even where this is less than 10% of the OSC. Full details are at CG53073.

  • Second, a holding of this size has to have been held throughout a continuous period of at least 12 months.  For disposals on or after 1 April 2017, this twelve month period needs to end no more than five years before the date of disposal. For earlier disposals, the period must end no more than twelve months before the date of disposal.

In considering whether the requirement is fulfilled special rules allow shareholdings to be aggregated when they are held by members of the same group or when they are transferred from one company to another in certain circumstances. CG53006 explains what a group is for the purposes of the substantial shareholdings legislation.

For the purposes of the substantial shareholdings regime ‘ordinary share capital’ has the meaning given by ICTA1988/S832(1), which applies for the purposes of corporation tax. This is all a company’s issued share capital, however named, excluding share capital the holders of which have a right to fixed-rate dividends but no other right to share in the company’s profits.

The detailed guidance on the substantial shareholding requirement is organised as follows:

CG53072 The minimum size of a substantial shareholding
CG53074 Aggregation of shares held by group companies
CG53076 Effect of liquidation
CG53078 The period over which the shares must be held
CG53080, A & B Aggregation of periods when shares held
CG53080C Aggregation of periods when trade assets transferred
CG53082 Effect of repurchase and stock lending arrangements