Section 626B Exemption from tax in the case of gains on certain disposals of shares

(1)(a) In this section, section 626C and Schedule 25A

“investor company” and “investee company” have the meanings assigned by subsection (2);

“relevant territory” means―

(i) a Member State of the European Communities,

(ii) not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made, or

(iii) not being a territory referred to in subparagraph (i) or (ii), a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law

“tax” in relation to a relevant territory other than the State means any tax imposed in that territory which corresponds to income tax or corporation tax in the State;

“2 year period” means a period ending on the day before the second anniversary of the day on which the period began.

(b) For the purposes of this section, section 626C and Schedule 25A

(i) a company shall only be a parent company in relation to another company at any time if that time falls within an uninterrupted period of not less than 12 months throughout which it directly or indirectly holds shares in that company by virtue of which―

(I) it holds not less than 5 per cent of the company’s ordinary share capital,

(II) it is beneficially entitled to not less than 5 per cent of the profits available for distribution to equity holders of the company, and

(III) it would be beneficially entitled on a winding up to not less than 5 per cent of the assets of the company available for distribution to equity holders,

and for the purposes of this subparagraph―

(A) subsections (2) to (10) of section 9 shall apply with any necessary modifications, and

(B) sections 413 to 419 shall apply as they apply for the purposes of Chapter 5 of Part 12 but as if “in a relevant territory” were substituted for “in the State” in subparagraph (iii) of section 413(3)(a) and as if paragraph (c) ofsection 411(1), other than that paragraph as it applies by virtue of clauses (I) and (II) of subparagraph (i), were disregarded,

(ii) in determining whether the conditions in paragraph (a) of subsection (2) are satisfied, a company that is a member of a group shall be treated as holding so much of any shares held by any other company in the group and as having so much of the entitlement of any such company to any rights enjoyed by virtue of holding shares―

(I) as the company would not, apart from this paragraph, hold or have, and

(II) as are not part of a life business fund within the meaning of section 719,

and, for the purposes of this subparagraph, “group” means a company which has one or more 51 per cent subsidiaries together with those subsidiaries,

(iii) in determining whether the treatment provided for in subsection (2) applies, the question of whether there is a disposal shall be determined without regard to section 584 or that section as applied by any other section: and, to the extent to which an exemption under subsection (2) does apply in relation to a disposal, section 584 shall not apply in relation to the disposal,

(iv) where assets of a company are vested in a liquidator under section 614 of the Companies Act  2014 or otherwise, the assets shall be deemed to be vested in, and the acts of liquidation in relation to the assets shall be deemed to be the acts of, the company (and acquisitions from, and disposals to, the liquidator shall be disregarded accordingly),

(v) section 616 shall not apply.

Amendments

Finance Act 2005 section 54(1).

Finance Act 2007 section 35.

Finance (No. 2) Act 2008 section 33(g).

Finance (No.2) Act 2013 Schedule(1)(g).

Finance Act 2017 section 82 and Schedule 2

(2) A gain accruing to a company (in this section referred to as the “investor company”) on a disposal of shares in another company (in this section referred to as the “investee company”) is not a chargeable gain if―

(a) the disposal by the investor company is at a time―

(i) when the investor company is a parent company of the investee company, or

(ii) within the 2 year period beginning on the most recent day on which the investor company was a parent company of the investee company,

(b) the investee company is, by virtue of the law of a relevant territory, resident for the purposes of tax in the relevant territory at the time of the disposal, and

(c) at the time of the disposal―

(i) the investee company is a company whose business consists wholly or mainly of the carrying on of a trade or trades, or

(ii) the business of―

(I) the investor company,

(II) each company of which the investor company is the parent company, and

(III) the investee company, if it is not a company referred to in clause (II), and any company of which the investee company is the parent company,

taken together consists wholly or mainly of the carrying on of a trade or trades.

Amendments

Finance Act 2005 section 54(1)(c).

(3) The treatment of a gain, as not being a chargeable gain, provided by this section and section 626C shall not apply―

(a) to a disposal that by virtue of any provision relating to chargeable gains is deemed to be for a consideration such that no gain or loss accrues to the person making the disposal,

(b) to a disposal a gain on which would, by virtue of any provision other than this section or section 626C, not be a chargeable gain,

(c) to disposals, including deemed disposals, of shares which are part of a life business fund within the meaning of section 719,

(d) to a disposal of shares deriving their value or the greater part of this value directly or indirectly from assets specified in paragraphs (a) and (b) of subsection (3) of section 29 and subsection (6) of that section,

(e) to deemed disposals under section 627.

(3A) (a) In this subsection ‘relevant treatment of a gain’ means the treatment, provided by this section or section 626C, of a gain as not being a chargeable gain.

(b) Notwithstanding any provision of section 590, the relevant treatment of a gain shall not apply for the purposes ofsection 590, but this is subject to paragraph (c).

(c) The relevant treatment of a gain shall apply for the purposes of section 590 where the participator (within the meaning of that section) is a company.

Amendments

Finance Act 2014 section 44(1).

(3B) (a)  In this subsection—

  “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions;

 “relevant assets” means the assets specified in subsection (3)(d).

(b) In calculating the portion of the value of shares attributable directlor indirectly to relevant assets, account shall not be taken of any arrangement that—

(i) involves a transfer of money or other assets (apart from relevant assets) from a person connected with the company in which those shares are held,

(ii) is made before a disposal of relevant assets, and

(iii) the main purpose or one of the main purposes of which is the avoidance of tax.

(4) Schedule 25A shall have effect for the purposes of supplementing this section and section 626C.