Currently, where a company disposes of, say, a subsidiary, the disposal will be a chargeable gain subject to corporation tax. The new relief proposes that where a company disposes of a shares in another company which meets qualifying conditions, the gain will be exempt.

When does the exemption start?

The rules will apply to disposals made after 1 April 2002. Further draft legislation was published on 26 March 2002 and will be included in the Finance Bill 2002.

What conditions does the company selling the shares need to meet?

The company disposing of the shares must:
a) own 10% or more of the share capital of the company being sold;
b) have owned the shares for at least 12 months in the two years before the disposal;
c) be a trading company (or a member of a trading group) throughout a period beginning with the latest 12 months for which the company met the tests in a) and b) above and ending on the date of disposal; and
d) be a trading company immediately after the disposal.

What conditions does the company being sold need to meet?

It must be a trading company in accordance with c) and d) above.

How will this new relief affect corporate planning?

Corporate sellers will now be looking to sell a company rather than an underlying trade and assets. Tax planning is likely to focus on achieving the conditions for the exemption and it will be essential that the shares are held for the qualifying period; a hive-down to a new company shortly before the sale would not qualify.