Substantial shareholdings

Guidance from HMRC

HMRC has provided guidance on the definitions of:

  • whether a company is a ‘trading group’; or
  • the holding company of a ‘trading group’ or a ‘trading subgroup’.

The legislative reference for the Substantial Shareholding Exemption is within Schedule 7AC TCGA 1992.

The definitions of ‘groups’ and ‘trading groups’ are contained within paragraph 24 of the special provision dealing with the activities of certain joint venture companies.

The confusion centres on whether any investment in a joint enterprise falls within the definition of a ‘joint venture company’.

HMRC’s view is that the special provision does not restrict the inclusion of an investment in a joint enterprise in a trading group.

The example HMRC provides is that where:

'…the effective management of the joint enterprise is closely integrated with that of the group and it conducts a trade that is similar to or complements that of the wider group, then that would suggest that group’s involvement in the enterprise does not represent a separate non-trading activity.'

HMRC goes on to explain that this does not also mean automatic inclusion within a group for all investments in a joint enterprise. The example it gives is:

'... a major UK-based retail group may open a large number of stores in Laputa, using a wholly owned corporation that does not have share capital (reflecting the local company law).

'The facts would suggest that the venture is part and parcel of the general trading activities when considering whether the overall group is a "trading group" for the purposes of the exemption.'

The Capital Gains Manual has been updated to reflect this understanding.

For more information, visit the 'Related links' section on this page.