IFM40930 - Gains exemption: qualifying shares

FA22/SCH2/PARA53(2)

Gains realised by a QAHC on qualifying shares are exempt from corporation tax.

Qualifying shares are defined at PARA 53(2) as any shares other than shares in UK property rich companies, adopting the definition from the non-resident capital gains rules (so shares whose value is at least 75 percent derived from UK land) (TCGA92/SCH1A/PT2). Note that shares in a company may change their property rich status depending on the activities of the company. This could have implications for the QAHC holding them (see IFM40370).

‘Shares’ is broadly defined and includes interests of members in companies without share capital, certain rights of unit holders in unit trusts and certain units in transparent funds.

The definition of shares also includes a ‘derivative contract’ to the extent that the underlying subject matter of the contact is shares. ‘Derivative contract’ for these purposes is defined at PARA 53(4) as:

• A contract which falls within the definition of ‘derivative contract’ in CTA09/S576; or
• A contract which would fall within the definition in CTA09/S576 but for the fact that it is excluded by CTA09/S589(2)(b). This exclusion applies to certain derivatives where the underlying subject matter is shares, such as a share warrant which entitles the shareholder to not less than 10% of the ordinary share capital of the relevant company. CFM50800 has further information.

Gains realised on a disposal of such derivative contracts are covered by the gains exemption in PARA 53(1). Note, however, that the PARA 53(1) exemption only relates to gains and does not extend to any profits which a QAHC is required to bring into account under the derivative contracts regime in CTA09/PT7. For example, profits realised in relation to a share warrant which entitles the holder to less than 10% of the ordinary share capital of the relevant company are likely to be taxed under CTA09/PT7 and accordingly will not be exempted by PARA 53(1).