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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Substantial shareholdings exemption: the substantial shareholding requirement - effect of repurchase agreement and stock lending arrangements

TCGA92/SCH7AC/PARA12 & TCGA92/SCH7AC/PARA13

Paragraph 12 Schedule 7AC TCGA 1992 deals with the effect of a sale with repurchase agreement on whether the substantial shareholding requirement is met.

If a company that holds shares in another company

  • transfers them to a third party under an agreement that requires the first company (or a person connected with the company) to buy them back,
  • such that the disposal is disregarded for the purposes of chargeable gains by virtue of section 263A TCGA 1992 (agreements for sale and repurchase of securities)

that company is treated as continuing to be the owner of the shares and as being entitled to any rights to distributable profits or assets in a winding up attached to them. The counterparty to the agreement is treated as not holding the shares, and not being entitled to any rights attached to the shares. So it is only the company that originally held the shares, and will repurchase them, that can meet the substantial shareholding requirement by virtue of the shares that are the subject of the agreement.

Paragraph 13 Schedule 7AC TCGA 1992 deals in a similar manner with stock lending arrangements. If a company transfers shares

  • other than by way of sale with a requirement that they will be transferred back other than by way of sale
  • such that the disposal is disregarded for the purposes of chargeable gains by virtue of section 263B TCGA 1992 (stock lending arrangements)

only the company, and not the other party to the agreement, is treated as the owner of the shares and entitled to the rights attached to the shares.

However, this approach ends if the company that originally owned the shares, or any other company in its group, becomes the actual owner of the shares during the period of a repurchase agreement or stock lending arrangements. CG53006 explains what is a group for the purposes of the substantial shareholdings legislation.