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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: the exemptions available - the main exemption for shares and interests in shares


Paragraph 1 Schedule 7AC TCGA 1992 contains the main exemption of the substantial shareholdings exemption regime. It provides that a gain accruing to a company (‘the investing company’) on a disposal of shares or an interest in shares in another company (‘the company invested in’) is not a chargeable gain if the requirements of Schedule 7AC are satisfied. These are

  • the substantial shareholding requirement (see CG53070 onwards), and
  • the requirements to be met by the investing company and the company invested in (see CG53100 onwards).

However, the exemption does not apply

  • in the circumstances specified in paragraph 5 Schedule 7AC TCGA 1992 (see CG53175 onwards), or
  • in the cases specified in paragraph 6 Schedule 7AC TCGA 1992 (see CG53190).

The meaning of ‘interest in shares’ is explained at CG53009. The main reason for specifically including an interest in shares in the exemption is to prevent a company engineering a disposal of shares standing at a loss in such a way that part of the loss is allowable. If the company arranged to dispose of a sizeable interest in the shares so that a large part of the loss accrued from that disposal and a disposal of an interest in shares was not covered by the exemption, that part of the loss could be an allowable loss.

Note that it is not necessary that the shares to which the exemption applies are the ordinary shares to which the substantial shareholdings condition applies. If the substantial shareholdings condition is met in relation to ordinary shares, a sale of, say, fixed rate preference shires in the same company is exempt, irrespective of the percentage of those shares held by the disposing company, and of the period for which the preference shares have been held.