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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: trading company and holding company of a trading group - investments in joint venture companies - overview

You may need to determine whether a shareholding held by one company in another is a qualifying shareholding in a joint venture company.

TCGA92/S165A provides that a qualifying shareholding in a joint venture company may be taken into account in deciding if the investing company is a trading company or the holding company of a trading group. The rules differ however depending on the date of disposal of the shares in the investing company. See CG64082 for the rules up to 18 March 2015.

FA2015/S43(2) introduced TCGA92/S169S(4A)(a) with effect from 18 March 2015 so that the special attribution rule for joint venture companies (see CG64083 for detail) no longer applies for Entrepreneurs’ Relief purposes when considering whether a company is a trading company or the holding company of a trading group.

FA2016 however made further changes and omitted TCGA92/S169S(4A) such that it never had effect. Instead, TCGA92/SCH7ZA provides for attribution subject to certain conditions being met (see below). What follows is therefore for information purposes only:

The effect of TCGA92/S169S(4A) was that a company or the members of the group had to be carrying on the activity themselves  – with no substantial non-trading activity – for the company to qualify as a trading company or the holding company of a trading group for Entrepreneurs’ Relief purposes.

The coming into force of this rule, where that meant that a company was no longer a trading company or a member of a trading group, did not mean that a company was treated as ceasing to be a trading company etc. for the purposes of potential entitlement to Entrepreneurs’ Relief under TCGA92/S169I, see FA2015/S43(4).

Investment in a joint enterprise that is not a “joint venture company”

These rules provide for the apportionment of activities of a company that meets the definition of a “joint venture company” at TCGA92/S165A(14). The existence of these provisions does not mean that an investment in a joint enterprise that is not within the statutory definition is necessarily treated as a non-trading activity when assessing whether a group is a “trading group”. Whether such an investment represents part of the 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 joint enterprise 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.