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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: the trading company/group/subgroup requirements - when are non-trading activities substantial - interest in an entity that does not have issued share capital

A company or group is not necessarily to be regarded as having non-trading investment activity when it holds an interest in an entity that does not have issued share capital (and therefore cannot form part of a capital gains group for these purposes).

Whether the interest represents part of the company or group’s overall trading activities or constitutes a separate investment activity will be a question of fact and depend on the circumstances of the case. Where, for example, the effective management of the entity is closely integrated with that of the group and it conducts a trade that is similar to or complements that of the wider group then that would suggest that the group’s involvement in the enterprise does not represent a separate non-trading activity.

For example, a major UK based retail group may open a large number of stores in Laputa, using a wholly owned corporation that does not have share capital (reflecting the local company law). The facts of the case may indicate that the venture is part and parcel of the general trading activity when considering whether the overall group is a “trading group” for the purposes of the exemption.