Corporation Tax

Substantial shareholding exemption ― overview

Produced by Tolley
  • 19 Oct 2021 22:56

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

  • Substantial shareholding exemption ― overview
  • SSE ― which disposals are exempt?
  • SSE ― Joint venture companies
  • SSE ― practical points

Substantial shareholding exemption ― overview

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. No claim is required. Provided the conditions for SSE are met, it applies automatically. Conversely, if losses are generated by the disposal and the SSE conditions are met, the losses are not allowable. There is no ability to disclaim the exemption (for example, where it would be advantageous to claim a loss).

The exemption is aimed at disposals of investments by companies in trading companies, groups and subgroups.

Ensuring the conditions for SSE are met is extremely important in disposals of qualifying companies. The rules are complex and, in particular, HMRC will often scrutinise the activities of the company / group / sub-group disposed of to establish whether the trading activity tests are met.

This is a high-risk area of tax work and only suitably experienced tax practitioners should sign off on SSE issues.

There is no statutory clearance mechanism available in relation to SSE but it is possible to seek HMRC’s opinion via the non-statutory clearance procedure to give comfort in cases where there is ‘material uncertainty’. For guidance, see the HMRC clearance applications ― overview guidance note. For disposals involving connected companies and / or where there has been an intra-group transfer of trading assets (the use of which are needed to meet the pre-disposal trading requirement), the post-disposal trading requirement should also be carefully considered and it should be made clear to clients that the trading requirement must be met after the disposal.

There can be interactions between the SSE legislation and other capital gains related provisions which modify or displace the normal rules. For example, SSE does not apply to a no gain / no l

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