CG53104 - Substantial shareholdings exemption: the trading company/group/subgroup requirements - the investee company

TCGA92/SCH7AC/PARA19

Paragraph 19 Schedule 7AC TCGA 1992 contains the requirements relating to the investee company. There are three aspects to these:

• the company (or its group) must have been involved in trading activities to a sufficient degree,
• throughout a stipulated period, and
• immediately after the time of the disposal (and, if later, the time the asset is conveyed or transferred).

The investee company will fulfil the requirements so far as its trading status is concerned if it is a ' qualifying company'. A company is a 'qualifying company' if it is

• a ' trading company' (see CG53110),
• the 'holding company' of a 'trading group', or
• the 'holding company' of a 'trading subgroup'.

CG53006 explains what is meant by the 'holding company' of a group and subgroup. CG53112 explains how you determine whether a group or a subgroup is a 'trading group' or a 'trading subgroup'.

The investee company will fulfil the requirements so far as the second aspect (stipulated period) is concerned if it was a 'qualifying company' throughout a stipulated period (see CG53106). Note that a company that was a trading company during part of this period and the holding company of a trading group or subgroup during the rest of it will satisfy this aspect of the requirements.

In testing the third aspect of the investee company requirements 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 investee company must also be a qualifying company after the conveyance or transfer (paragraph 19(3) Schedule 7AC TCGA 1992).

Although the main and first subsidiary exemptions (see CG53155 & CG53160 respectively) will not be available if the investee company doesn't qualify after the disposal (or transfer/conveyance), a gain on the disposal could still be exempt. Provided the investee company met the first two aspects of the requirements, exemption under the second subsidiary exemption may be available (see CG53165).