Corporation Tax Act 2010 section 1040

Determining whether interests as shareholders in a group are substantially reduced

Section 1040 explains how to determine whether a seller's shareholding interest in a purchaser's group has been substantially reduced following a company's purchase of its own shares, and sets out the method of calculation.

• A seller's interest is substantially reduced only if, after the purchase, it falls to no more than 75% of what it was immediately before the purchase.
• The interest is calculated by averaging the seller's fractional shareholdings across all relevant companies in the purchaser's group, including companies in which the seller holds no shares.
• Relevant companies include the purchasing company itself and any other group member in which the seller holds shares immediately before or immediately after the purchase.
• When assessing the combined interests of the seller and the seller's associates, the same calculation applies but the seller is treated as holding the associates' interests as well as their own.