IFM40345 - Becoming a QAHC: substantial shareholding exemption: when company leaves

It is possible for the substantial shareholding exemption (SSE) (CG53005) to apply to the gain/loss accruing at point of entry into the QAHC regime where a company continues to own the qualifying shares after leaving the QAHC regime.

Example

Company X has held qualifying shares for three months before entering the QAHC regime. The shares are treated as sold and reacquired at point of entry to the QAHC regime. The shares continue to be held but company X leaves the QAHC regime after ten months, eventually selling the shares to a third party after being held for a total period of three years.

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

Correct relieving provisions – the interaction of the QAHC and SSE rules

When a company leaves the regime, there may be a deemed disposal of qualifying shares (as well as other assets) - see the exit charge provisions (IFM40450). Gains arising from deemed disposals at time of exit may be exempt from charge under FA22/SCH2/PARA53 (see IFM40930).

Care must be taken to ensure that the correct exempting provision is applied to gains on entry (SSE) and gains on exit (PARA 53).

Any gains arising on the disposal of the shares after the time at which the company has exited the regime will be outside of the QAHC regime rules and no QAHC based exemption will apply.

Example

Company Y has held qualifying shares for three months before entering the QAHC regime in September 2023. The shares are treated as sold and reacquired at point of entry to the QAHC regime, resulting in a gain of £10,000. The shares continue to be held but company Y leaves the QAHC regime after two years in September 2025, a further gain of £20,000 arises at point of exit. The company eventually sells the shares to a third party after being held for a total period of three years in September 2026, a further gain of £30,000 arises at point of sale.

As the shares have been continually held for longer than twelve months, the £10,000 gain arising at point of entry will be exempt from charge under the SSE (assuming all requirements are met), the £20,000 gain arising at point of exit will be exempt from charge under PARA 53 (assuming all relevant conditions have been met). As there was a deemed disposal at point of entry in September 2023, the £20,000 will be calculated using the September 2023 base cost. The £30,000 gain arising after the company has left the regime will not be eligible for any QAHC based exemption and will be chargeable under relevant chargeable gains charging provisions relating to the facts and circumstances at the time, in the usual way. As there was a deemed disposal at point of exit in September 2025, the £30,000 will be calculated using the September 2025 base cost. SSE may potentially be available in relation to the eventual disposal, with the company’s period of ownership able to be treated as stretching back into the period in which it was a QAHC by reason of PARA 17(6) and PARA 31(4).