SSE and the trading requirement

Produced by Tolley
SSE and the trading requirement

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • SSE and the trading requirement
  • The trading condition
  • What is a trading company?
  • Substantial income of a non-trading nature
  • During the course of a trade and investments
  • Change of trading activities
  • Further considerations

The trading condition

The commentary set out in this guidance note covers the current substantial shareholding exemption (SSE) regime. For further details of the regime, see Simon’s Taxes Division D1.10 and for details of the regime as it applied before 1 April 2017, please see Simon’s Taxes D1.1071.

What is a trading company?

One of the conditions that must be satisfied by the investee company for the purposes of the SSE is that it must be (a) trading company or member of a trading group or a trading sub-group. The trading conditions must also be met in certain circumstances by the investee company immediately after the disposal.

The other main conditions are set out in the Substantial shareholding exemption: overview guidance note.

The SSE legislation defines ‘trade’ as a trade, profession or vocation within the meaning of the Income Tax Acts, which must be conducted on a commercial basis with the intention of realising profits.

A particular definition also applies to the terms ‘trading company’, ‘trading group’ and ‘trading sub-group’ (see TCGA 1992, Sch 7AC, Part 3, paras 20, 21 and 22 respectively). In each case, the activities of the company, group or sub-group must not include substantial amounts of non-trading activities, such as the passive holding of investments.

Substantial income of a non-trading nature

‘Substantial’ is generally interpreted by HMRC to be more than 20%.

CG53116 provides further clarification on its interpretation of the meaning of substantial as:

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