Taxation of Chargeable Gains Act 1992 Schedule 7AC paragraph 14

Effect in relation to company invested in of earlier company reconstruction etc

Schedule 7AC paragraph 14 deals with how the substantial shareholding requirement can still be satisfied when shares in the company invested in were acquired through an earlier share exchange or company reconstruction.

• Where shares in one company (company X) have been exchanged for shares in another company (company Y) under a share-for-share exchange or reconstruction, and the exchange is treated as involving no disposal under the normal reorganisation rules, this paragraph allows the investing company to look back at its earlier shareholding in company X when testing the substantial shareholding requirement.
• The substantial shareholding requirement can be met by reference to company X for periods before the exchange, combined with periods after the exchange when shares in company Y were held, provided this produces a continuous twelve-month qualifying period starting no more than six years before the disposal.
• This look-back treatment applies whether company Y is the company invested in directly, or is itself a company that qualifies under this paragraph or the demerger provisions of paragraph 15 — allowing the rule to operate through successive reconstructions.
• If the substantial shareholding requirement can be met using this look-back approach (whether alone or in combination with the demerger provisions), it is treated as satisfied — but only where the normal no-disposal reorganisation treatment under section 127 has not been disapplied.