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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Substantial shareholdings exemption: the exemptions available - anti-avoidance measure to prevent inappropriate exemption - identification and handling of cases


Paragraph 5 Schedule 7AC TCGA 1992 is an anti-avoidance measure to prevent exploitation of the substantial shareholdings exemptions.

It will be unusual for the anti-avoidance rule to apply. If you think it could apply so a gain on a disposal may not be exempt you should establish all the relevant facts and consider them in the light of the guidance in CG53180. If when you have done this you think you have a good case for invoking the anti-avoidance rules, you must send a summary of the facts and your arguments with all your papers to Capital Gains Technical Group. You have to obtain the approval of CGTG before you put any arguments to the effect that the anti-avoidance rule applies to the company or its advisers.

Statement of Practice 5/02 was issued when the rule was introduced, see CG53185.

Application following changes to the degrouping charge in 2011

FA11 introduced changes to the way the degrouping charge operates which are largely aimed at improving the interaction with the Substantial Shareholdings Exemption. These changes were introduced to make the exemption more effective for groups that make commercial disposals of trading companies. Where there is no such disposal, for example where the share disposal is to a connected party in order to avoid tax on a sale of an asset (because of the uplift in base cost) then the anti-avoidance rule in TCGA92/Sch7AC/para5 may apply so that the gain on shares will not be exempt. In terms of the legislation that is explained at CG53180:

  • A degrouping charge that is added to share consideration on a disposal that would be within the exemption (but for the anti-avoidance rule) is an untaxed gain, and
  • Transferring assets into a group company so that a degrouping charge will arise will amount to a “significant change of trading activities” for that company.