Substantial shareholdings exemption
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The substantial shareholdings exemption is an exemption from assessment of capital gains under corporation tax applicable to United Kingdom companies. The exemption is found in Schedule 7AC of the Taxation of Chargeable Gains Act 1992.
The rationale for the exemption is that groups of companies should be able to restructure without having to concern themselves with taxation of capital gains.
Similar provisions apply in jurisdictions such as the Netherlands, which has a participation exemption.
[edit] Eligibility
To qualify for the exemption, a company must meet the following criteria:
- The company must dispose of shares or an interest in shares.
- The company must hold at least 10% of the ordinary share capital of the company to which the shares relate.
- The company must be entitled to at least 10% of profits and 10% of the other company's assets on liquidation.
- The company must have had a 10% shareholding in the other company for a continuous period of at least 12 months in the preceding two years.
[edit] Applicability
The exemption only applies to disposals of shares made on or after 1 April 2002. The relief is automatic, meaning that a company does not have to submit a claim to Her Majesty's Revenue and Customs.
