The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The substantial shareholding 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 SSE regime is contained in TCGA 1992, Sch 7AC. This guidance note covers the current 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.
Ensuring the conditions for SSE are met is extremely important in disposals of trading subsidiaries. The rules are complex and, in particular, HMRC will often scrutinise the activities of the company / 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. For detailed information, see the subsequent notes in the Corporate Tax module and Simon’s Taxes D1.10.
It is often advisable to seek HMRC’s opinion via the non-statutory clearance procedure to give comfort where there is ‘material uncertainty’. For guidance, see the Drafting clearance applications 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.
The SSE main exemption is triggered where the investing company has held a substantial shareholding in a qualifying investee company for a continuous period of 12 months during the six years prior to disposal. The six-year time limit allows subsequent disposals out of what was once a substantial shareholding to continue to qualify, despite the fact that the 10% threshold has ceased to be satisfied.
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