Substantial Shareholdings Exemption

Tax Question

How does the Substantial Shareholdings Exemption (SSE) work?

Tax Answer

SSE is a relief available for limited companies only.

Gains are not chargeable, and losses are not allowable where:

  • an investing company
  • which has held a substantial shareholding in an investee company
  • disposes of any shares in the investee company.

There is no requirement for the proceeds from the sale of this shareholding to be used in any particular way.

The exemption is dependent on the investing company having held a substantial shareholding in the investee company throughout a 12-month period beginning no more than six years prior to the disposal. The investing company must hold at least 10% of the ordinary share capital of the investee company and must also be beneficially entitled to at least 10% of the profits and assets available for distribution.

The investee company must have been a trading company or the holding company of a trading group or subgroup throughout the period beginning with the start of the latest 12-month period in relation to which it passed the substantial shareholding test and ending with the time of the disposal. There are no conditions relating to the status of the investing company.

Extensions to the normal rules for SSE

The substantial shareholding condition is deemed to have been met because a trading asset has been hived down into the investee company within the previous 12 months, and at the time of that transfer, the investing company, the investee company and the company which transferred the trading asset were all in the same group.

It treats the minimum 12-month substantial shareholding requirement of as having been met for the period assets which were used for a trade conducted by another group company before being transferred to the investee company.

This can be hugely beneficial where a company wants to sell a trading asset, in isolation from the rest of the business. The trading company can transfer an asset to another company, within the same group, and immediately sell the shares in the new company and qualify for SSE.

It is important to note that the asset must be used in a trade both at the point it is transferred to the investee company and when the investee company is sold.

If you need any assistance in this or any other matter, please feel free to get in touch.

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