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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: introduction - the trading company/group/subgroup requirements


Part 3 of Schedule 7AC TCGA 1992 (paragraphs 18 to 25) contains the rules relating to the requirements that must be met by both

  • the ‘investing company’ (the company making the disposal). These requirements do not apply to disposals on or after 1 April 2017.  and
  • the ‘investee company’ (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’)

before the substantial shareholdings exemption regime can apply.

S27 F(2)A 2017 removed the  investing company requirement in its entirety for disposals on or after 1 April 2017

F(2)A 2017 also introduced changes to the SSE regime which remove the investee company requirements where the investing company is owned at the time of the disposal wholly or partly by  Qualifying Institutional Investors – see CG53012 for the definition of QII, and CG53073 for details of the changes to the investee test.

The exemption regime is aimed at trading companies, groups and subgroups. The substantial shareholdings exemption employs some of the same concepts as taper relief (e.g. trading company, trading group). Other definitions (e.g. trading subgroup) are relevant only to the substantial shareholdings exemption.

Broadly speaking, to meet the requirements the activities of the company, group or subgroup throughout a qualifying period and immediately after the disposal

  • must include trading activities, and
  • must not, to a substantial extent, include activities that are not trading activities.

Whether during any particular period or at any particular time a company, group or subgroup satisfies the requirements will depend on the facts. What did the activities of the company during that period or at that time include? The status of a company, group or subgroup can change as the activities that are being carried on change so it will not normally be possible to predict with certainty what the status may be at some future time. If the Inspector dealing with the case cannot agree the status of the company this will be a matter for the Tribunal to decide.

The detailed guidance on the requirements placed on the investing and investee companies is organised as follows:

CG53102 Requirements for investing company as amended by F(2)A 2017
CG53104 Requirements for investee company
CG53106 What is the qualifying period
CG53108 Aggregation of periods
CG53110 What is a trading company
CG53112 What is a trading group and trading subgroup
CG53113 What are trading activities
CG53113a What is trade
CG53113b What is meant by ‘in the course of, or for the purpose of trade’
CG53113c What is meant by ‘preparing to carry on a trade’
CG53113d What is meant by ‘acquiring or starting to carry on a trade’, or ‘acquiring shares in a trading company’
CG53113e What is meant by ‘as soon as is reasonably practicable in the circumstances’
CG53114 Special rules for joint venture companies
CG53116 Measures in judging when non-trading activities substantial -
CG53116a - Income from non-trading activities
CG53116b - the asset base
CG53116c - expenses incurred, or time spent, by officers and employees of the company in undertaking its activities
CG53117 - shares held otherwise than as investments
CG53118 - investments in Corporate Venturing Schemes
CG53119 Surplus trading property
CG53120 Dealing with requests for opinions on trading status