Commentary

D1.1033 Substantial shareholding exemption—Meaning of trading group

Corporate tax
Corporate tax | Commentary

D1.1033 Substantial shareholding exemption—Meaning of trading group

Corporate tax | Commentary

D1.1033 Substantial shareholding exemption—Meaning of trading group

The term trading group is used for the purpose of defining the requirements to be met by the target company (see D1.1031) (and the investing company for disposals before 1 April 2017 see D1.1071)) for the substantial shareholding exemption (SSE) to apply.

For this purpose a group is as defined by TCGA 1992, s 170 (see D2.305), except that the definition is amended so that group includes the principal company and its 51% subsidiaries rather than 75% subsidiaries (see the definitions at D1.1065)1. Use of the TCGA 1992, s 170 definition means that the group includes both UK and non-UK resident subsidiaries.

A trading group is a group where one or more of the members carries on trading activities and where the activities of all the members do not include non-trading activities to any substantial extent2. For this purpose the activities of the members of the group are treated as one business, and intra-group activities are disregarded3. Such intra-group activity includes4:

  1.  

    •     holding shares in other group companies

  2.  

    •     making loans to other group members

  3.  

    •     intra-group trading transactions

  4.  

    •     paying and receiving dividends, interest or royalties intra-group

  5.  

    •     leasing or letting property intra-group

Therefore, the existence of a group property company which lets property to various members of the group does not jeopardise the trading status of the overall group, as the intra-group rentals are ignored, whereas any letting to third parties would give rise to an activity that is not a trading activity. Similarly,

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