Where a qualifying investing company disposes of shares to which investment relief is attributable, and an allowable loss is incurred on the disposal, the company may claim to set that loss against income provided:
If the shareholding is covered by the substantial shareholding
exemption then no allowable loss will be incurred on the disposal
and no loss relief will therefore be due. The substantial
shareholding exemption will normally apply to investments in
trading companies where the shareholding is 10% or more of the
investee company’s ordinary share capital and the investment
is held for at least 12 months. The full qualifying conditions can
be found at CG53000 onwards.
In determining the amount of chargeable gain or allowable
loss on a disposal where investment relief remains attributable to
the shares immediately afterwards, the amount of that relief is
deducted from the consideration given for the shares. If a gain
arises by virtue of this deduction it is not a chargeable gain.
Example
June 2001 a qualifying investing company subscribes
£100,000 for 50,000 shares in a qualifying issuing company.
The investing company claims investment relief of £20,000 for
its accounting period ending on 31 December 2001.
In January 2004 the investing company sells all 50,000 shares
for £60,000. (The shareholding is less than 10% of the
investee company’s ordinary share capital and the substantial
shareholding exemption does not apply.) Investment relief of
£12,000 is withdrawn (£60,000 x 20%), in accordance with
FA00/SCH15/PARA46. £8,000 investment relief is not withdrawn
and remains attributable to the shares sold. The allowable loss is
calculated as follows:
| Disposal proceeds | £60,000 | ||
| Less cost | £100,000 | ||
| Reduced by investment relief not withdrawn | £8,000 | £92,000 | |
| Allowable loss | (£32,000) |
