Substantial Shareholdings Print

Subject to certain conditions, companies are exempt from capital gains on the disposal of a substantial shareholding in another company. The relief is given without the necessity of a claim, and it should be noted that relief for a loss on such a disposal is not allowable.

A vendor company is regarded as having a substantial shareholding in another company where:

It holds at least 10% of the company’s ordinary share capital;

It is beneficially entitled to at least 10% of the profits available for distribution to equity holders of the company;

On a winding up of the company, it would be beneficially entitled to at least 10% of the assets of the company available for distribution to equity holders.

The substantial shareholdings exemption does not apply where under other legislation the gain would not be chargeable (or the loss allowable) or where:

The disposal is dealt with as giving rise to no gain/no loss.

The disposal is dealt with under deemed market value rules.

For the relief to be due, the disposal must be made by a trading company, or a member of a trading group, and the company making the disposal must have held the shares for a continuous period of 12 months beginning not more than 2 years before the disposal takes place. The company being sold must also be a trading company, or the holding company of a trading group. In certain circumstances this latter rule is relaxed, for instance where instead of being sold, the investee company is being liquidated, or wound-up.

The relief is also extended to cover assets related to shares in the following circumstances:

If at the time of the disposal, the company making the disposal holds shares in the company in which it holds the related assets being sold, and any gain on a disposal at that time would be an exempt disposal under these provisions.

Where the shares are not held directly by the company making the disposal, but by a company, which is a fellow member of the same group of companies of which the company making the disposal is a member, and if the shares were held by the disposing company, the disposal of them would be an exempt disposal under these provisions.

Assets related to shares are broadly defined for these purposes as being:

(a)        An option to acquire or dispose of shares or an interest in shares in that company, or

(b)        A security that may be converted into, or exchanged for shares or an interest in shares in that company, or into an option as in (a) above, or

(c)        An option to acquire or dispose of a security within paragraph (b) or an interest in any such security, or

(d)        An interest in, or an option over, any option or security as is mentioned in paragraph (a), (b), or (c) or

(e)        An interest in, or an option over, any interest or option as is mentioned in paragraph (d) or option over any interest or option as mentioned within this paragraph.

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