SCHEDULES
F1SCHEDULE 7ACExemptions for disposals by companies with substantial shareholding
Part 1The exemptions
Subsidiary exemption: disposal of shares or related asset where main exemption conditions previously met
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.
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 (but see sub-paragraph (3) below);
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 would, by virtue of F2section 10B, form part of that company’s chargeable profits for corporation tax purposes;
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.
3
Sub-paragraph (1) does not apply if—
a
the condition in sub-paragraph (2)(b) is met but would not be met but for a failure to meet the requirement in paragraph 18(1)(b) (requirement as to investing company to be met immediately after the disposal), and
b
the failure to meet that requirement is not due to—
i
the fact that company A has been wound up or dissolved, or
ii
where the winding up or dissolution takes place as soon as is reasonably practicable in the circumstances, the fact that company A is about to be wound up or dissolved.
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 of paragraph 18(1)(b) and 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.
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