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HMRC internal manual

Capital Gains Manual

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Substantial shareholdings exemption: interaction with other legislation - degrouping - time of deemed disposal and reacquisition

TCGA92/SCH7AC/PARA38

TCGA92/Sch7AC/Para38 modifies the way that the degrouping legislation in TCGA92/S179 operates (see CG45401 onwards). It applies if a gain on a hypothetical disposal of the asset that is the subject of the degrouping charge immediately before the degrouping event would have been exempted by Part 1 of TCGA92/Sch7AC.

When it applies it provides that the deemed sale and reacquisition of the asset [under TCGA92/S179(3) or (6)] had occurred immediately before the degrouping event - not immediately after the asset was transferred.

FA11 amended TCGA92/S179 in respect of disposals made on or after 19 July 2011. The effect of this amendment is that in many cases where a degrouping charge arises under TCGA92/S179(3) the gain or loss that arises will, by virtue of TCGA92/S179(3A), be added to or deducted from the consideration for the disposal of the shares in the company leaving the group. If the conditions of Schedule 7AC are met in respect of that disposal of shares the exemption will apply to the whole of the gain or loss including the degrouping charge element. The modification applied by virtue of paragraph 38 as described in the paragraph above does not need to be considered.

If however a separate degrouping charge arises under TCGA92/S179(3) or (6) then this is not added to or deducted from the consideration for the disposal of the shares consequentially the paragraph 38 modification may need to be considered. As will be the case when the disposal of shares that leads to the company leaving the group does not itself come within the exemption.