IFM40340 - Becoming a QAHC: substantial shareholding exemption: entry disposal

FA2022/SCH2/PARA17(4) to (6)

Availability of substantial shareholding exemption on entry disposal

Qualifying shares (IFM40930) will be treated as disposed of and reacquired when a company enters the QAHC regime (IFM40330).

As there has been a deemed share disposal, a gain may accrue. Where the substantial shareholding requirements at TCGA92/SCH7AC are met, the gain will be exempt (CG53005). Where a company only acquired the qualifying shares shortly before joining the QAHC regime, the substantial shareholding exemption (SSE) would not normally apply because the SSE rules require that shares are owned for at least twelve months before the disposal date (CG53070).

The substantial shareholding requirements are usually considered at the time when a company disposes of shares to a new owner. The QAHC rules create a deemed disposal for tax purposes only; in reality, the shares remain held by the same owner. The QAHC rules, therefore, deem the twelve-month ownership requirement to have been met on that deemed disposal where the QAHC continues to hold the qualifying shares so that they are held by it for at least twelve consecutive months. Therefore, if all the substantial shareholding requirements are met apart from the twelve-month ownership period at the time of the deemed disposal, SSE could still apply to the deemed disposal of qualifying shares by a company upon entry into the QAHC regime if it continues to hold those shares for the required period. For the SSE to apply to the gain arising from the deemed disposal, all SSE requirements must be met on the date immediately after the date when the shares have been held by the QAHC for twelve months.

Example

A company has held qualifying shares for three months before entering the QAHC regime. The qualifying shares are treated as sold and reacquired at point of entry to the QAHC regime. The qualifying shares are eventually sold by the QAHC to a third party after being held for a total period of three years.

If all the substantial shareholding requirements are met on the date immediately after the date on which the qualifying shares have been held for twelve months, then the gain / loss accruing from the deemed disposal of the qualifying shares at point of entry into the QAHC regime is not a chargeable gain / allowable loss.