SSE and the trading requirement

By Tolley

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

  • SSE and the trading requirement
  • The trading condition
  • Change of trading activities
  • Further considerations

The substantial shareholdings exemption (SSE) provides a complete exemption from the liability to corporation tax on the gains generated from qualifying disposals of shares and interests in shares by qualifying companies. Conversely, if losses are generated by the disposal and the SSE conditions are met, the losses are not allowable.


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 (both subscription sensitive).

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.

TCGA 1992, Sch 7AC, Part 3, para 19

The other main conditions are set out in the Overview of the substantial shareholding exemption 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.

TCGA 1992, Sch 7AC, Part 4, para 27

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:

  • over 20% of turnover made up of investmen

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