ACCA ATX ^UK Syllabus A4. Corporation Tax - Substantial shareholding exemption - Notes ^{1 / 1}

If a company disposes of the whole or part of a substantial shareholding in another company, then provided the qualifying criteria are met any capital gain will not be a chargeable gain and any capital loss will not be allowable.

What is a substantial shareholding?

A substantial shareholding is one where the investing company holds:

• 10% or more of the ordinary share capital; and

• 10% of the profits available for distribution to equity holders; and

• 10% of the assets available for distribution to equity holders upon a winding up.

• The conditions must be met for a continuous 12 month period in the 6 years prior to disposal.

Illustration

Peepy Ltd has owned 100% of the shares in one trading company Kreepy Ltd since 1 January 2017.  

Peepy Ltd has been offered £600,000 for the whole of the company’s share capital in Kreepy Ltd.  

Peepy Ltd has taxable trading profits of £400,000 each year. 

The indexed cost for the  shares in Kreepy Ltd was £400,000.   

What chargeable gain will arise on the sale of these shares in Kreepy Ltd?

Solution

No chargeable gain will arise on this sale. 

This is because, Kreepy Ltd. is a trading company and Peepy Ltd. owns >10% of the shares for >12 months in the last 6 years. Therefore, this disposal will take place at no gain, no loss.