CG53106 - Substantial shareholdings exemption: the trading company/group/subgroup requirements - the qualifying period

TCGA92/SCH7AC/PARA18 & TCGA92/SCH7AC/PARA19

Paragraph 18 Schedule 7AC TCGA 1992 identifies ' thequalifyingperiod' throughout which the investing company must, to meet the investing company requirements, have been carrying on trading activities to a sufficient degree. Paragraph 19 Schedule 7AC TCGA 1992 requires the investee company to have carried out comparable activities during the same period.

The period runs

• from the start of the latest twelve month period throughout which the investing company met the substantial shareholding requirement (see CG53070 onwards)
• to the time of the disposal, or later. The normal rules in section 28 TCGA 1992 apply to determine the time of a disposal made under a contract (see CG14260 onwards). Where the time of the disposal under that section is before the time at which the asset is conveyed or transferred, the period is effectively extended to the time of conveyance or transfer (paragraphs 18(5) and 19(3) Schedule 7AC TCGA 1992).

Example

On 1 October 2002 company A acquires 12% of the ordinary share capital of company B. On 31 July 2004 company A sells one third of its shares in company B retaining 8% of that company's ordinary share capital (the first disposal). On 31 January 2005 company A sells its remaining shares in company B (the second disposal).

The latest twelve month period throughout which company A held at least 10% of the ordinary share capital of company B is the period 1 August 2003 to 31 July 2004. The qualifying period starts on 1 August 2003 for both disposals and the period throughout which

• company A must satisfy the investing company requirements, and
• company B the investee company requirements

normally runs from 1 August 2003 to 31 July 2004 for the first disposal, and from 1 August 2003 to 31 January 2005 for the second disposal.

If the first disposal were under a contract and section 28 TCGA 1992 provided that 31 July 2004 was the time of the disposal, but the shares were not actually transferred until (say) 31 August 2004, the period would be extended and run from 1 August 2003 to 31 August 2004.