'Substantial Relief For Substantial Disposals - The New Proposals'

The current position:

At present, where a UK company sells an investment in another company and realises a profit, that profit is liable for tax as a capital gain at a rate of 30%. No relief is available if the profit achieved is re-invested. However, in July 2001 HM Treasury and the Inland Revenue issued a joint consultation document detailing revised proposals for a new tax relief for companies disposing of substantial shareholdings- Large Business Taxation: The Government's strategy and corporate tax reforms- a consultation document (available at www.hm-treasury.gov.uk or www.inlandrevenue.gov.uk). The government intends any such relief only to apply to shares and not to any other securities. Legislation implementing the new relief is expected to be introduced in the Finance Bill 2002.

A "substantial shareholding":

The proposals envisage that a substantial shareholding would be defined as a beneficial entitlement to at least 20% of the investee company's ordinary share capital, distributable profits and distributable assets (as amplified by the rules in Schedule 18 of the Income and Corporation Taxes Act 1988).

Where the qualifying shareholder company is a member of a trading group, it may be possible to take into account other group members' beneficial...