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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: the trading company/group/subgroup requirements - acquiring or starting to carry on a trade, or acquiring shares in a trading company


Activities that a company undertakes with a view to acquiring or starting to carry on a trade, or acquiring a significant interest in the share capital of a trading company, may count as trading activities.

It is quite common for a company to dispose of its trade (or main trading subsidiary) and to invest (or put on deposit) the cash proceeds while it looks around to acquire a new trade or trading subsidiary. A company, group or subgroup temporarily in this position and actively seeking to acquire a new trade or trading subsidiary might still be a trading company, trading company or trading subgroup if it does not have substantial non-trading activities.

Trading activities here include assessing the potential viability of a trade which the company, group or subgroup is considering carrying on and other such activities even though they are not directly preparatory to the carrying on of the particular trade under consideration. So, a company, group or subgroup which has surplus cash that it intends to use to acquire a trade, or to start up one from scratch, which is actively evaluating a number of possible trades may be engaged in trading activities.

However, such activities are trading activities only if an acquisition is made, or a new trade is commenced, as soon as is reasonably practicable in the circumstances (CG53113e).