Posted: April 21, 2021
A recent First Tier Tribunal judgement has confirmed HMRC’s view – see here for full judgement http://www2.bailii.org/uk/cases/UKFTT/TC/2021/TC08054.html of the required holding period for Substantial Shareholding Exemption to apply where a trade has been ‘hived down’ into a new company.
The case concerns the specific application of part of the Capital Gains Tax legislation (Para 15A Schedule 7AC Taxation of Chargeable Gains Act 1992) which has potential significance where a trade was ‘hived down’ ahead of a sale. Tax Partner Tom Saltmer comments “The application of this clause had been in doubt for some time as it potentially created an unnatural situation where Substantial Shareholding Exemption would apply if the original company had a dormant subsidiary but would not apply if there was no such subsidiary”.
Whilst the Judge in the M Group Holdings case did note this unnatural outcome it was not found that this was sufficient to depart from the strict wording on the legislation.
On that basis it is clear that HMRC’s view is that Substantial Shareholding Exemption would not apply where a single company ‘hives down’ a trade ahead of a sale – likely meaning a substantially worse tax position. Potential transactions will then need to be structured on a different basis to achieve the same tax outcome.
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