»Ê¹ÚÌåÓýapp

TCGA92/SCH7AC/PARA8 & TCGA92/SCH7AC/PARA17

Paragraph 8 Schedule 7AC TCGA 1992 defines what is a substantial shareholding. »Ê¹ÚÌåÓýapp investing company holds a substantial shareholding when it holds at least 10% of the ordinary share capital of the investee company and it is, or it would be, beneficially entitled to at least 10% of

• the profits of the investee company available for distribution to its equity holders, and
• the assets of the investee company available for distribution to its equity holders if it was wound up.

Schedule 18 ICTA 1988 is used, in a slightly modified form, to identify the equity holders of an investee company and to determine the profits and assets available for distribution to the equity holders. »Ê¹ÚÌåÓýapp modifications merely

• replace references in Schedule 18 to sections 403C and 413(7) ICTA 1988 with references to paragraph 8(1) Schedule 7AC TCGA 1992;
• prevent a bank from counting as an equity holder of the investee company in respect of loans made to the investee company in the ordinary course of its business;
• disapply the rules in paragraph 5(3) of Schedule 18 when there are arrangements that could vary a shareholder’s entitlements;
• disapply the rules in paragraphs 5(3) and 5B to 5E of Schedule 18 when certain options over shares have been granted;
• disapply the rules in paragraph 5F of Schedule 18 for non-resident companies;
• omit the alternative method of identifying the period being considered given by paragraph 7(1)(b) of Schedule 18.

»Ê¹ÚÌåÓýappre is guidance on Schedule 18 ICTA 1988 at CTM81005 onwards.

Paragraph 8(1) Schedule 7AC TCGA 1992 specifically provides that although 10% counts as a ‘substantial shareholdingâ€� this is without prejudice to what is meant by ‘substantialâ€� in other contexts. Legislation often refers to whether something is ‘substantialâ€� as being a factor in whether a particular relief is available. This puts some limit on when a relief may be allowed without necessarily creating a cliff edge with the resultant hard cases that this causes. For these areas we have said that we consider that more than 20% will usually count as being ‘substantialâ€�. »Ê¹ÚÌåÓýappre is no intention that the 10% limit in paragraph 8 should affect this view.

Paragraph 17 Schedule 7AC TCGA 1992 further modifies the rules governing what is a substantial shareholding for some shares held, directly or indirectly, by life assurance companies, but the taxation of insurance companies is not covered in detail by this manual (see CG69007). »Ê¹ÚÌåÓýappre is guidance on paragraph 17 in the Life Assurance Manual at Lam03720 onwards.