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TCGA92/SCH7AC/PARA26

TCGA1992/Sch7AC/Para 26 explains what is meant for the purposes of the substantial shareholdings exemption legislation by ‘company�, ‘group� and related expressions.

A company has the same meaning as in TCGA1992/S170(9), see CG45105. A group comprises the companies that would form a group if in the definition of a group of companies in TCGA1992/S170 references to �75% subsidiaries� were replaced by references to �51% subsidiaries�. See CG45120 onwards for guidance on section 170. Note that a group of companies can include companies that are not resident in the United Kingdom. The holding company of a group is the company that TCGA1992/S170 describes as the ‘principal company� of a group.

A 51% subsidiary has the meaning given to that phrase by ICTA1988/S838. Broadly speaking, a company is a 51% subsidiary of another company if the other company beneficially owns, directly or indirectly, more than 50% of the first company’s ordinary share capital.

Detailed guidance on the meaning of “shares� and “ordinary share capital� can be found in the Company Taxation Manual at CTM00511 to 00516. For the purposes of Schedule 7AC share capital of a registered industrial and provident society is treated as ordinary share capital. Not all corporate bodies will have the equivalent of ordinary share capital. Such companies cannot therefore be 51% subsidiaries of other companies.

The concept of a subgroup is relevant when considering whether the company whose shares have been disposed of qualifies for exemption. Suppose that a group’s structure is as follows, with all companies being wholly owned by the company above them:

A company that owned shares in company X could sell those shares - that would be a disposal of shares in the holding company of a group. Company X could sell its shares in company B - that would be a simple disposal of shares in a company with no question of whether it was any sort of holding company. Or company X could sell its shares in company C. Company C has subsidiaries but is not the holding company of a group, as it is itself a 51% subsidiary of another company. The set of companies C, D and E is identified as a subgroup for the purposes of the substantial shareholdings exemption legislation. And company C is the holding company of that subgroup.

For companies incorporated outside the United Kingdom ‘group� and ‘subsidiary� are construed with any necessary modifications.