Part 4 of 4
This is the Finance Act 2021 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2022 to 31 March 2023. Candidates sitting ATX-UK after 31 March 2023 should refer to the Finance Act 2022 version of this article (to be published on the ACCA website in 2023).
So far we have reviewed the definitions of a group relief group and a capital gains group together with tax planning and other issues relating to capital gains groups.
In this final part we look at the substantial shareholding exemption. This is not necessarily related to capital gains groups but is an important relief when considering the disposal of shares by a company.
The SSE is given automatically where there is a sale of shares in a trading company out of a substantial shareholding and the conditions are satisfied. It should be noted that the sale must be OUT OF a substantial shareholding as opposed to a sale OF a substantial shareholding; it is not the percentage of shares sold that is relevant but rather the percentage holding prior to the sale.
The SSE exempts any gain arising on the sale of shares as well as denying relief for any loss. Consequently, it is an important exemption and its availability must be considered before chargeable gains or allowable losses are calculated.
For the exemption to be available:
This qualifying 12-month period can include the time when the assets owned by the company being sold were used within a trade carried on by the group before being transferred to the company being sold. This extension to the qualifying period enables the SSE to apply where a trade is transferred to a new company (ie a company that has not been owned for 12 months) within a group prior to that company being sold to a third party.
AF Ltd owns the whole of the ordinary share capital of JW Ltd. JW Ltd is a trading company such that if AF Ltd were to sell the shares in JW Ltd the SSE would apply. However, AF Ltd has not been able to find a buyer for JW Ltd (this may be due to the possibility of there being contingent liabilities in JW Ltd). Consequently, the trade and assets of JW Ltd are to be transferred to a newly formed subsidiary, PN Ltd, and a buyer will then be found for the shares in PN Ltd.
The transfer of the assets to PN Ltd will take place at no gain, no loss because the two companies are in a capital gains group. However, degrouping charges (see part 2 of this article) will arise on the sale of PN Ltd as it will leave the group within six years of the no gain, no loss transfers. The degrouping charges will be added to the consideration received by AF Ltd on the sale of the shares in PN Ltd.
Although AF Ltd will not have owned PN Ltd for the requisite 12-month period, the SSE will be available on the sale of PN Ltd because the assets owned by PN Ltd will have been used within a trade carried on by the group for the required period.
Where a question involves a capital gains group you should be able to anticipate the sort of additional information that may be given.
Note: Corporation tax issues are considered in two further articles:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.