ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the effect of a group structure
Gamma Ltd owns 100% of Delta Ltd. Gamma sells its entire shareholding in Delta Ltd to an unconnected buyer, having held it for four years. Delta Ltd is a trading company with trading activities throughout, and Gamma is a trading group member. Which statement about the corporation tax treatment of the gain on the shares is correct?
The gain is exempt if the substantial shareholdings conditions are met, and equally any loss would not be allowable. This is because the exemption works symmetrically, disregarding both gains and losses on qualifying disposals of shares in a trading company.
- AThe gain is exempt under the substantial shareholdings exemption if the conditions are met, and a loss would not be allowableCorrect
- BThe gain is always taxable at 25% with no relief
- CThe gain is chargeable but can be rolled over against any asset purchases
- DThe gain is exempt but a loss would be allowable against other gains
Explanation
Where the substantial shareholdings exemption applies, gains are exempt and losses are not allowable. The investing company must have held at least 10% for 12 months in the previous six years and the investee must be trading. Option 4 is wrong because losses are equally disregarded.
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