Taxation of Chargeable Gains Act 1992

[F1 Part 1 U.K. The exemptions

Textual Amendments

F1 Sch. 7AC inserted (with effect in accordance with s. 44(3)(4) of the amending Act) by Finance Act 2002 (c. 23), Sch. 8 para. 1

The main exemption U.K.

1 (1) A gain accruing to a company (“the investing company”) on a disposal of shares or an interest in shares in another company (“the company invested in”) is not a chargeable gain if the requirements of this Schedule are met. U.K.

(2) The requirements are set out in—

• Part 2 (the substantial shareholding requirement), and

• Part 3 (requirements to be met in relation to F2 ... the company invested in).

(3) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.

Textual Amendments

F2 Words in Sch. 7AC para. 1(2) omitted (with effect in accordance with s. 27(6) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), s. 27(2)(a)

Subsidiary exemption: disposal of asset related to shares where main exemption conditions met U.K.

2 (1) A gain accruing to a company (“company A”) on a disposal of an asset related to shares in another company (“company B”) is not a chargeable gain if either of the following conditions is met. U.K.

(2) The first condition is that—

(a) immediately before the disposal company A holds shares or an interest in shares in company B, and

(b) any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain.

(3) The second condition is that—

(a) immediately before the disposal company A does not hold shares or an interest in shares in company B but is a member of a group and another member of that group does hold shares or an interest in shares in company B, and

(b) if company A, rather than that other company, held the shares or interest, any gain accruing to company A on a disposal at that time of the shares or interest would, by virtue of paragraph 1, not be a chargeable gain.

(4) Where assets of a company are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, this paragraph applies as if the assets were vested in, and the acts of the liquidator in relation to the assets were the acts of, the company (acquisitions from or disposals to him by the company being disregarded accordingly).

(5) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.

Subsidiary exemption: disposal of shares or related asset where main exemption conditions previously met U.K.

3 (1) A gain accruing to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”) is not a chargeable gain if the following conditions are met. U.K.

(2) The conditions are—

(a) that at the time of the disposal company A meets the requirement in paragraph 7 (the substantial shareholding requirement) in relation to company B;

(b) that a chargeable gain or allowable loss would, apart from this paragraph, accrue to company A on the disposal F3 ... ;

(c) that at the time of the disposal—

(i) company A is resident in the United Kingdom, or

(ii) any chargeable gain accruing to company A on the disposal [F4 would be chargeable to corporation tax as a result of section 2B(3) or (4)];

(d) that there was a time within the period of two years ending with the disposal (“the relevant period”) when, if—

(i) company A, or

(ii) a company that at any time in the relevant period was a member of the same group as company A,

had disposed of shares or an interest in shares in company B that it then held, a gain accruing would, by virtue of paragraph 1, not have been a chargeable gain; and

(e) that, if at the time of the disposal the requirements of paragraph 19 (requirements relating to company invested in) are not met in relation to company B, there was a time within the relevant period when company B was controlled by—

(i) company A, or

(ii) company A together with any persons connected with it, or

(iii) a company that at any time in the relevant period was a member of the same group as company A, or

(iv) any such company together with any persons connected with it.

F5 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In determining for the purpose of sub-paragraph (2)(d) whether a gain accruing on the hypothetical disposal referred to would have been a chargeable gain, the requirements F6 ... of paragraph 19(1)(b) (requirement as to company invested in to be met immediately after the disposal) shall be assumed to be met.

(5) Where—

(a) immediately before the disposal company B holds an asset,

(b) the expenditure allowable in computing any gain or loss on that asset, were it to be disposed of by company B immediately before that disposal, would fall to be reduced because of a claim to relief under section 165 (gifts relief) in relation to an earlier disposal, and

(c) that earlier disposal took place within the relevant period,

sub-paragraph (1) does not prevent a gain accruing to company A on the disposal from being a chargeable gain but any loss so accruing is not an allowable loss.

(6) Where assets of company B are vested in a liquidator under section 145 of the Insolvency Act 1986 or Article 123 of the Insolvency (Northern Ireland) Order 1989 or otherwise, sub-paragraph (5)(a) applies as if the assets were vested in the company.

(7) In determining “the relevant period” for the purposes of sub-paragraph (2)(d) or (e) or sub-paragraph (5)(c), section 28 (time of disposal under contract) applies with the omission of subsection (2) (postponement of time of disposal in case of conditional contract).

(8) The exemption conferred by this paragraph does not apply in the circumstances specified in paragraph 5 or the cases specified in paragraph 6.

Textual Amendments

F3 Words in Sch. 7AC para. 3(2)(b) omitted (with effect in accordance with s. 27(6) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), s. 27(2)(b)(i)

F4 Words in Sch. 7AC para. 3(2)(c)(ii) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 92

F5 Sch. 7AC para. 3(3) omitted (with effect in accordance with s. 27(6) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), s. 27(2)(b)(ii)

F6 Words in Sch. 7AC para. 3(4) omitted (with effect in accordance with s. 27(6) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), s. 27(2)(b)(iii)

[F7 Subsidiary exemption: qualifying institutional investors U.K.

Textual Amendments

F7 Sch. 7AC paras. 3A, 3B and cross-heading inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 28(2)

3A (1) This paragraph applies in relation to a gain or loss accruing to a company (“the investing company”) on a disposal of shares or an interest in shares in another company (“the company invested in”). U.K.

(2) This paragraph applies if—

(a) the requirement in paragraph 7 is met (substantial shareholder requirement),

(b) the requirement in paragraph 19 is not met (requirement relating to company invested in), and

(c) the investing company is not a disqualified listed company.

(3) If, immediately before the disposal, 80% or more of the ordinary share capital of the investing company is owned by qualifying institutional investors, no chargeable gain or loss accrues on the disposal.

(4) If, immediately before the disposal, at least 25% but less than 80% of the ordinary share capital of the investing company is owned by qualifying institutional investors, the amount of the chargeable gain or loss accruing on the disposal is reduced by the percentage of the ordinary share capital of the investing company which is owned by the qualifying institutional investors.

(5) A company is a “disqualified listed company” for the purposes of this Part of this Schedule if—

(a) any of the shares forming part of the ordinary share capital of the company are listed on a recognised stock exchange,

(b) the company is not a qualifying institutional investor, and

(c) the company is not a qualifying UK REIT

(6) In sub-paragraph (5)(c) “qualifying UK REIT” means a UK REIT within the meaning of Part 12 of CTA 2010 which—

(a) meets the condition in section 528(4)(b) of that Act (company not a close company by virtue of having an institutional investor as a participant), or

(b) by virtue of section 443 of that Act (companies controlled by or on behalf of Crown) is not treated as a close company.

3B (1) This paragraph applies for the purposes of paragraph 3A. U.K.

(2) A person “owns” ordinary share capital if the person owns it—

(a) directly,

(b) indirectly, or

(c) partly directly and partly indirectly.

(3) Sections 1155 to 1157 of CTA 2010 (meaning of “indirect ownership” and calculation of amounts owned indirectly) apply for the purposes of sub-paragraph (2).

(4) For the purposes of sections 1155 to 1157 of CTA 2010 as applied by sub-paragraph (3)—

(a) ordinary share capital may not be owned through a disqualified listed company;

(b) treat references to a body corporate as including an exempt unauthorised unit trust (and references to ordinary share capital, in the case of such a trust, as references to units in the trust).

(5) A person is also to be regarded as owning ordinary share capital in a company in circumstances where a person would, under paragraphs 12 and 13 of this Schedule, be regarded as holding shares in a company.

(6) Where the assets of a partnership include ordinary share capital of a company, each partner is to be regarded as owning a proportion of that share capital equal to the partner's proportionate interest in that ordinary share capital.

(7) In this Schedule “exempt unauthorised unit trust” has the same meaning as in the Unauthorised Unit Trusts (Tax) Regulations 2013 (SI 2013/2819).]

Application of exemptions in priority to provisions deeming there to be no disposal etc U.K.

4 (1) For the purposes of determining whether an exemption conferred by this Schedule applies, the question whether there is a disposal shall be determined without regard to— U.K.

(a) section 116(10) (reorganisation, conversion of securities, etc treated as not involving disposal),

(b) section 127 (share reorganisations etc treated as not involving disposal), or

(c) section 192(2)(a) (distribution not treated as capital distribution).

(2) Sub-paragraph (1) does not apply to a disposal of shares if the effect of its applying would be that relief attributable to the shares under Schedule 15 to the Finance Act 2000 (corporate venturing scheme) would be withdrawn or reduced under paragraph 46 of that Schedule (withdrawal or reduction of investment relief on disposal of shares).

(3) Where or to the extent that an exemption conferred by this Schedule does apply—

(a) the provisions mentioned in sub-paragraph (1)(a) and (b) do not apply in relation to the disposal, and

(b) the provision mentioned in sub-paragraph (1)(c) does not apply in relation to the subject matter of the disposal.

(4) Where section 127 is disapplied by sub-paragraph (3)(a) in a case in which that section would otherwise have applied in relation to the disposal by virtue of paragraph 84 of Schedule 15 to the Finance Act 2000 (corporate venturing scheme: share exchanges), paragraph 85 of that Schedule (attribution of relief to new shares) does not apply.

(5) In this paragraph any reference to section 127 includes a reference to that provision as applied by any enactment relating to corporation tax.

Circumstances in which exemptions do not apply U.K.

5 (1) Where in pursuance of arrangements to which this paragraph applies— U.K.

(a) an untaxed gain accrues to a company (“company A”) on a disposal of shares, or an interest in shares or an asset related to shares, in another company (“company B”), and

(b) before the accrual of that gain—

(i) company A acquired control of company B, or the same person or persons acquired control of both companies, or

(ii) there was a significant change of trading activities affecting company B at a time when it was controlled by company A, or when both companies were controlled by the same person or persons,

none of the exemptions in this Schedule applies to the disposal.

(2) This paragraph applies to arrangements from which the sole or main benefit that (but for this paragraph) could be expected to arise is that the gain on the disposal would, by virtue of this Schedule, not be a chargeable gain.

(3) For the purposes of sub-paragraph (1)(a) a gain is “untaxed” if the gain, or all of it but a part that is not substantial, represents profits that have not been brought into account (in the United Kingdom or elsewhere) for the purposes of tax on profits for a period ending on or before the date of the disposal.

(4) The reference in sub-paragraph (3) to profits being brought into account for the purposes of tax on profits includes a reference to the case where—

(a) an amount in respect of those profits is apportioned to a company resident in the United Kingdom by virtue of subsection (3) of section 747 of the Taxes Act 1988 (imputation of chargeable profits etc of controlled foreign companies), and

(b) a sum is chargeable on that company in respect of that amount by virtue of subsection (4) of that section for an accounting period of that company ending on or before the date of the disposal.

(5) For the purposes of sub-paragraph (1)(b)(ii) there is a “significant change of trading activities affecting company B” if—

(a) there is a major change in the nature or conduct of a trade carried on by company B or a 51% subsidiary of company B, or

(b) there is a major change in the scale of the activities of a trade carried on by company B or a 51% subsidiary of company B, or

(c) company B or a 51% subsidiary of company B begins to carry on a trade.

(6) In this paragraph—

• “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;

• “major change in the nature or conduct of a trade” has the same meaning as in [F8 section 673 of CTA 2010] (change of ownership of company: disallowance of trading losses);

• “profits” means income or gains (including unrealised income or gains).

Textual Amendments

F8 Words in Sch. 7AC para. 5(6) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 269(2) (with Sch. 2)

Other cases excluded from exemptions U.K.

6 (1) The exemptions conferred by this Schedule do not apply— U.K.

(a) to a disposal that by virtue of any enactment relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal,

(b) to a disposal a gain on which would, by virtue of any enactment not contained in this Schedule, not be a chargeable gain, or

(c) to a deemed disposal under [F9 any of sections 116 to 118 of the Finance Act 2012] (deemed disposal on transfer of asset of insurance company from one category to another).

(2) The hypothetical disposal referred to in paragraph 2(2)(b) or (3)(b) or paragraph 3(2)(d) shall be assumed not to be a disposal within sub-paragraph (1)(a), (b) or (c) above.]

Textual Amendments

F9 Words in Sch. 7AC para. 6(1)(c) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 88(2)

Modifications etc. (not altering text)

C1 Sch. 7AC para. 6 excluded by Corporation Tax Act 2009 (c. 4), s. 782A(3) (as inserted (with effect in accordance with s. 26(5) of the amending Act) by Finance Act 2019 (c. 1), s. 26(3))