Taxation of Chargeable Gains Act 1992 Schedule 7AC paragraph 3

Subsidiary exemption: disposal of shares or related asset where main exemption conditions previously met

Section 3 provides a subsidiary exemption from chargeable gains tax when a company disposes of shares (or related interests or assets) in another company, even though not all the conditions for the main substantial shareholdings exemption are met at the time of disposal, provided those conditions were met at some point within the previous two years.

• A gain on disposal of shares in Company B by Company A is exempt if Company A holds a substantial shareholding at the time of disposal and, within the preceding two years, the main exemption conditions would have been satisfied on a hypothetical disposal by Company A or a fellow group member
• Company A must be UK resident or the gain must otherwise be within the charge to UK corporation tax, and a chargeable gain or allowable loss must genuinely arise apart from this exemption
• If Company B does not meet the investee company requirements at the time of disposal, Company B must have been controlled at some point within the two-year period by Company A, a fellow group member, or persons connected with either
• The exemption is denied where Company B holds an asset whose allowable cost has been reduced by a gifts relief claim made during the two-year period, although in that scenario any loss is also prevented from being an allowable loss