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HMRC internal manual

Capital Gains Manual

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


TCGA1992/Sch7AC/Para19 contains the requirements relating to the investee 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).

For disposals up to and including 31 March 2017, the requirements must also be met immediately after the time of the disposal (and, if later, the time the asset is conveyed or transferred). For disposals on or after 1 April 2017, F(2)A 2017 removed the requirement in para 19(1)(b) for companies to be a qualifying company immediately after disposal except in two specific circumstances set out in new sub paragraph 19(1A). These circumstances are:-

                Where the disposal is to a person connected with the investing company, or

                Where the requirement in Paragraph 7 is met only by virtue of Paragraph 15A

F(2)A 2017 introduced new rules in Para 3A and 3B for disposals where the investor company is owned, in whole or in part,  by Qualifying Institutional Investors,  “QIIs”.  For disposals on or after 1 April 2017, the trading conditions within Para 18 do not apply where at least 25% of the investor company is owned by QIIs. SEE CG53012 for further detail

Involvement in trading activities to a substantial degree

The investee company will fulfil the requirements so far as its trading status is concerned if it is a ‘qualifying company’. A company is a ‘qualifying company’ if it is a ‘trading company’ (see CG53110), the ‘holding company’ of a ‘trading group’, or the ‘holding company’ of a ‘trading subgroup’.

CG53006 explains what is meant by the ‘holding company’ of a group and subgroup. CG53112 explains how you determine whether a group or a subgroup is a ‘trading group’ or a ‘trading subgroup’.

Stipulated period

The investee company will meet this condition if it was:

  • a ‘qualifying company’ throughout a stipulated period (see CG53106). Note that a company that was a trading company during part of this period and the holding company of a trading group or subgroup during the rest of it will satisfy this aspect of the requirements.
  • For certain disposals of shares made on or after 19 July 2011 if the conditions in TCGA1992/Sch7AC/Para15A (2)(b) to (d) are met (see CG53080C) the investee company is treated as having been a ‘qualifying company’ throughout the final 12 month period ending with the time of the disposal.

‘Qualifying company’ immediately after the time of the disposal

For disposals on or after 1 April 2017, this rule will only be relevant in very limited circumstances – see above.

For the investee company to fulfil this condition the normal rules in TCGA1992/S28 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 investee company must also be a qualifying company after the conveyance or transfer - TCGA1992/Sch7AC/Para19(3).

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