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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 trading company/group/subgroup requirements - aggregation of periods

TCGA92/SCH7AC/PARA25

Paragraph 25 Schedule 7AC TCGA 1992 provides that paragraphs 14 and 15 Schedule 7AC TCGA 1992 (see CG53080) apply in relation to the paragraph 19 Schedule 7AC TCGA 1992 requirements of the investee company (see CG53104) as they do to the substantial shareholding requirement. So when there has been

  • a share exchange or company reconstruction to which section 135 or 136 TCGA 1992 applies the section 127 TCGA 1992 no disposal and same asset treatment (see CG52250 onwards), or
  • a demerger to which section 192 TCGA 1992 applies section 127 treatment (see CG57815)

during the period throughout which the status of the investee company has to be considered (see CG53106) you consider the activities of both companies.

Example 

  • On 1 July 2003 company A acquires (say) 30% of the ordinary share capital of company X.
  • On 1 March 2004 company X is acquired by company Y. Company A receives shares in company Y in exchange for its shares in company X and thereafter holds (say) 15% of the ordinary share capital of company Y. Exemption is not due at the time of the exchange of shares, since company A has not met the substantial shareholding requirement. So the no disposal or acquisition and same asset treatment of section 127 TCGA 1992 applies. Company A is treated as if it had acquired its shares in company Y as it acquired its shares in company X.
  • On 31 July 2004 company A sells its shares in company Y.

The period over which you need to test whether the investee company requirements (see CG53104) were met runs from 1 August 2003 to 31 July 2004 (see CG53106). Paragraph 25 Schedule 7AC TCGA 1992 allows you to consider this by reference to the activities of

  • company X from 1 August 2003 to 1 March 2004, and
  • company Y from 1 March 2004 to 31 July 2004.