When a parent sells part of its shareholding in a subsidiary but keeps control, FRS 102 treats the sale as a transaction between the owners of the group, not as a disposal. No gain or loss goes through the group profit and loss account, assets and goodwill are not remeasured, and the difference between the proceeds and the increase in non controlling interest is taken straight to equity attributable to the parent (paragraphs 9.19A and 9.20A). The parent’s own accounts, and its tax return, still show a gain.

Why is there no gain in the group accounts?

Consolidated accounts present the parent and its subsidiaries as a single reporting entity (paragraph 9.13). Outside shareholders in a subsidiary are part of the group’s equity: paragraph 9.20 requires non controlling interest to be presented within equity, separately from the equity of the owners of the parent. Selling some subsidiary shares to an outsider while keeping control does not change what the group controls. The same assets, liabilities and trade are still consolidated in full. What changes is how the group’s equity is split between the parent’s shareholders and the minority.

FRS 102 reflects that in two places. Paragraph 9.19A says that where a parent reduces its holding in a subsidiary and control is retained, it is accounted for as a transaction between equity holders, the change in non controlling interest is dealt with under paragraph 9.20A, and no gain or loss is recognised at the date of disposal. Paragraph 9.20A then sets out the mechanics.

What does paragraph 9.20A require?

Changes in a parent’s controlling interest that do not result in a loss of control are treated as transactions with equity holders in their capacity as equity holders. In practice that means:

  1. Adjust the carrying amount of the non controlling interest to reflect the change in the parent’s interest in the subsidiary’s net assets.
  2. Recognise any difference between that adjustment and the fair value of the consideration received directly in equity, attributed to the owners of the parent.
  3. Recognise no gain or loss.
  4. Make no change to the carrying amounts of assets, including goodwill, or liabilities.

Because the rule is framed around any change in the controlling interest that stops short of losing control, the same reasoning applies whether the parent sells existing shares or the subsidiary issues new shares to outsiders that dilute the parent’s percentage. In both cases the first question is whether control survives, judged under paragraphs 9.4 to 9.6A, not simply whether the parent still holds more than half the shares.

How does this work in numbers?

Illustration only. Parent P owns 100% of S. In the consolidated accounts S’s identifiable net assets are carried at £800,000 and there is goodwill of £60,000 from the original acquisition, which cost P £600,000 in its own books. P sells 20% of S to a management team for £250,000 and keeps 80% and control.

Group accounts Debit Credit
Cash received £250,000
Non controlling interest: 20% of £800,000 £160,000
Equity attributable to owners of the parent £90,000

Goodwill stays at £60,000 and S’s assets stay at their existing carrying amounts. From the date of sale, 20% of S’s profit is attributed to the non controlling interest (paragraph 9.22), even if that later produces a deficit balance.

In P’s own accounts the picture is different. If P uses the cost model it derecognises 20% of the £600,000 cost, so £120,000, and reports a gain of £130,000 in its own profit and loss account. Distributable profits are judged on P’s own figures, not the group’s: under section 836 of the Companies Act 2006, whether a distribution can be made is determined by reference to the company’s relevant accounts, normally its last annual accounts.

Does the same apply when the parent buys out minority shareholders?

Yes, in mirror image. Paragraphs 9.19C and 9.19D say that where a parent increases its controlling interest, the subsidiary’s identifiable assets and liabilities are not revalued, no additional goodwill is recognised, and the transaction is accounted for between equity holders under paragraph 9.20A. Paying more than the carrying amount of the minority’s share reduces equity attributable to the parent rather than creating goodwill. Our page on FRS 102 consolidated accounts covers the wider framework.

Gaining control in the first place is different: that is a business combination with a goodwill calculation, covered on our page on an associate or investment becoming a subsidiary. Losing control is different again and does produce a gain or loss in the group accounts; see selling a subsidiary.

Is this the same under IFRS?

Broadly. IFRS 10 paragraph 23 says changes in a parent’s ownership interest that do not result in loss of control are equity transactions, and paragraph B96 requires the carrying amounts of the controlling and non controlling interests to be adjusted, with any difference from the fair value of the consideration recognised directly in equity and attributed to the owners of the parent. The practical differences tend to come from how non controlling interest was measured on acquisition. IFRS 3 paragraph 19 allows it at fair value or at the proportionate share of net assets, whereas FRS 102 paragraph 19.14A always measures it at the share of the identifiable net assets, so FRS 102 non controlling interest never carries goodwill.

How is the sale taxed?

The equity treatment in the group accounts has no tax effect. A UK parent company selling shares has a chargeable gain computed from its tax base cost, and the substantial shareholding exemption may apply where its conditions are met, including a holding of at least 10% of the ordinary share capital for a continuous 12 month period ending no more than five years before the sale. See our page on the substantial shareholding exemption.

A partial sale can also change the group’s tax position even though it does not change the accounting. Group relief needs a 75% subsidiary relationship under section 151 of the Corporation Tax Act 2010, measured by ordinary share capital and entitlement to profits and assets. Selling down from 80% to 70% keeps control for accounts purposes but takes the subsidiary out of the group relief group. See group relief for losses.

What mistakes come up most often?

  • Putting a gain through the group profit and loss account. Paragraph 9.19A says no gain or loss is recognised. The parent’s company level gain is eliminated on consolidation and replaced with the equity entry.
  • Derecognising part of the goodwill. Paragraph 9.20A prohibits any change in the carrying amount of goodwill while control is retained.
  • Revaluing the subsidiary’s assets. Not permitted; the existing consolidated carrying amounts stand.
  • Assuming control is kept because the parent still holds a majority. Shareholder agreements entered into with the buyer can give them rights that shift control. Check paragraphs 9.4 to 9.6A before choosing the accounting.
  • Forgetting the non controlling interest going forward. Profit, other comprehensive income and total comprehensive income must be attributed between the parent’s owners and the non controlling interest from the sale date (paragraph 9.22).

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.