Taxation of Chargeable Gains Act 1992 section 8–8A

Meaning of "substantial shareholding"

Section 8–8A defines what counts as a "substantial shareholding" for the purposes of the substantial shareholding exemption, setting out the standard 10% test and an alternative £20 million cost test for companies backed by qualifying institutional investors.

• A company holds a substantial shareholding if it owns at least 10% of the ordinary share capital of another company, is entitled to at least 10% of distributable profits, and would receive at least 10% of assets on a winding up.
• An alternative route applies where at least 25% of the investing company's ordinary share capital is owned by qualifying institutional investors: the investing company can qualify if its shares in the investee cost at least £20,000,000 to acquire and it holds a proportionate entitlement to profits and winding-up assets.
• The £20,000,000 cost test looks at the total consideration paid (including incidental acquisition costs), whether acquired in a single transaction or through a series of purchases.
• Where the investing company's actual percentage entitlement to profits or assets falls slightly below the proportionate percentage, it is still treated as meeting the test provided the shortfall can reasonably be regarded as insignificant.