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HMRC internal manual

Capital Gains Manual

Substantial shareholdings exemption: the exemptions available – Qualifying Institutional Investors


S28 of F(2)A 2017 introduced a further subsidiary exemption which takes effect with respect to disposals on or after 1 April 2017 where certain conditions are met.

These conditions are that

                The requirement in paragraph 7 “the substantial shareholder requirement” is met,

                The requirement in paragraph 19 “the investee trading requirement” is not met, and

                The investing company is not a “disqualified listed company

If these conditions apply, we look at the nature of the shareholding in the investor company.

If, immediately before the disposal, 80% or more of the ordinary share capital of the investing company is owned by Qualifying Institutional Investors (“QIIs”) then no chargeable gain or loss accrues on the disposal (para 3A(3)

The definition of Qualifying Institutional Investor was introduced in Para 30A by F(2)A 2017 – see CG53015.

If, immediately before the disposal, between 25% and 80% of the ordinary share capital of the investing company is owned by QIIs, then the amount of gain (or loss) accruing is reduced by the percentage of the OSC of the investing company which is owned by the QIIs.



Paragraph 3A(5) defines a disqualified listed company as one where any part of the OSC of the company is listed, the company is not a qualified institutional investor and the company is not a qualifying REIT (as defined in Part 12 of CTA2010.)


Paragraph 3B  sets out, in detail, what is meant by “owned” by QIIs. Share capital can be owned directly, indirectly or a combination of the two (para 3B(2)), where the definition and calculation of indirect ownership are taken from S1155 to 1157 CTA2010.


In working out ownership of the investing companies by QIIs,   OSC owned through a disqualified listed company is disregarded. References to a body corporate include an exempt unauthorised unit trust and references to share capital include references to units in the trust.  The rules treat a person as owning shares within paragraph 12 (repo arrangements) and paragraph 13 (sale and leaseback arrangements) regard that person as owning the shares for the purposes of the substantial shareholding test in paragraph 7.


Ownership of share capital through a partnership is addressed in paragraph 3B(6) which states that where partnership assets include OSC of a company, each partner is to be regarded as owning

a proportion of share capital equal to the partners proportionate interest in that OSC