CG53070 - Substantial shareholdings exemption: introduction - the substantial shareholding requirement

TCGA92/SCH7AC/PART2

Part 2 of Schedule 7AC TCGA 1992 (paragraphs 7 to 17) contains the rules relating to 'the substantial shareholding requirement'.

Paragraph 7 Schedule 7AC TCGA 1992 lays down what is necessary for shares held by a company to satisfy the substantial shareholding requirement. There are two aspects to this:

• First, the shareholding must be of a certain size for it to be a 'substantial shareholding', as defined in paragraph 8 Schedule 7AC TCGA 1992. Broadly speaking, the investing company must hold at least 10% of the investee company's ordinary share capital. It must also be entitled to at least 10% of the profits and assets available for distribution to equity holders by the investee company.
• Second, a holding of this size has to have been held throughout a continuous period of at least 12 months ending not more than one year before the disposal.

In considering whether the requirement is fulfilled special rules allow shareholdings to be aggregated when they are held by members of the same group or when they are transferred from one company to another in certain circumstances. CG53006 explains what is a group for the purposes of the substantial shareholdings legislation.

For the purposes of the substantial shareholdings regime 'ordinary share capital' has the meaning given by section 832(1) ICTA 1988, which applies for the purposes of corporation tax. This is all a company's issued share capital, however named, excluding share capital the holders of which have a right to fixed-rate dividends but no other right to share in the company's profits.

The detailed guidance on the substantial shareholding requirement is organised as follows: