Taxation of Chargeable Gains Act 1992 Schedule 7AC paragraph 15

Effect in relation to company invested in of earlier demerger

Paragraph 15 deals with how the substantial shareholding exemption requirements are preserved when shares in a subsidiary have previously been transferred to shareholders as part of a demerger.

• When a parent company transfers shares in a subsidiary as part of a demerger, the substantial shareholding requirement can be tested by looking back at the parent company's shareholding history for periods before the transfer
• This applies whether the subsidiary is the company invested in directly, or is a company whose shareholding history is already being traced through an earlier demerger or company reconstruction
• If the substantial shareholding requirement can be satisfied using this look-back rule (alone or combined with the equivalent rule for company reconstructions), it is treated as having been met
• A demerger for these purposes means a transfer of shares where the tax rules treat the parent and subsidiary as if they were the same company undergoing a share capital reorganisation, with no disposal or acquisition taking place