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HMRC internal manual

Capital Gains Manual

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


Paragraph 18 is repealed in its entirely by F(2)A 2017. For disposals on or after 31 March 2017, there are no trading conditions applying to the investing company or group

The guidance is left in place in respect of disposals before 1 April 2017 only

Before the changes introduced by F(2)A 2017, Paragraph 18 Schedule 7AC TCGA 1992 contained  the requirements relating to the investing company. There are three aspects to these:

  • the company (or its group) must have been involved in trading activities to a sufficient degree,
  • throughout a stipulated period, and
  • immediately after the time of the disposal (and, if later, the time the asset is conveyed or transferred).

The investing company will fulfil the requirements so far as its trading status is concerned

  • while it is not a member of a group, if it is a ‘trading company’ (see CG53110), or
  • while it is a member of a group, if the group is a ‘qualifying group’.

A ‘qualifying group’ is a ‘trading group’ (see CG53112) with one minor modification. A group in which one or more of the members are not established for profit is also a ‘qualifying group’ if, by excluding the not for profit activities of those members, it would be a ‘trading group’. In determining whether a member of a group is established for profit you ignore any object or power of the company that is only incidental to its main objects. This modification will only be relevant very rarely and for most practical purposes a ‘qualifying group’ is synonymous with a ‘trading group’.

The investing company will fulfil the requirements so far as the second aspect is concerned provided it was

  • if not a member of a group, a ‘trading company’, or
  • a member of a ‘qualifying group’

throughout ‘the qualifying period’ (see CG53106). Note that a company that was not a member of a group but was a trading company during part of the qualifying period and was a member of a qualifying group during the rest of that period will satisfy this aspect of the requirements.

A group could lose exemption if, for example, shares were transferred from a long established group member to one that had only been established after the qualifying period had started. To avoid this the first two aspects of the investing company requirements will also be treated as met if

  • at the time of the disposal the investing company was a member of a group,
  • it could have transferred the asset to another group member at no gain/no loss under section 171(1) TCGA 1992 immediately before the disposal, and
  • the other group member would have satisfied those aspects of the requirements if it had made the disposal.

In testing the third aspect of the investing company requirements the normal rules in section 28 TCGA 1992 apply to determine the time of a disposal made under a contract (see CG14260 onwards). Where the time of the disposal under that section is before the time at which the asset is conveyed or transferred the investing company must also be a member of a trading group or, if not in a group, a trading company after the conveyance or transfer (sub-paragraph (5) of paragraph 18 Schedule 7AC TCGA 1992).

Although the main and first subsidiary exemptions (see CG53155 & CG53160 respectively) will not be available if the investing company doesn’t qualify after the disposal (or transfer/conveyance), a gain on the disposal could still be exempt. Provided the investing company met the first two aspects of the requirements, exemption under the second subsidiary exemption may be available (see CG53165).