Accessing the benefits of Substantial Shareholding Exemption ('SSE') can transform how your business plans disposals. By using the rules wisely, you can achieve significant tax savings and unlock cash for growth. This post explains how SSE works in practice and why planning ahead matters.
What is Substantial Shareholding Exemption?
Substantial Shareholding Exemption ('SSE') lets a qualifying company sell shares in a trading company without paying Corporation Tax on any gain. This relief can potentially be accessed as part of a holding company restructure.
If you meet the qualifying conditions, the gain on the sale is fully exempt. This means you keep more of the proceeds for reinvestment or expansion.
What are the qualifying conditions?
In order to obtain the benefits of Substantial Shareholdings exemption the following conditions have to be met:
If your company is selling the shares does it's not necessary to sell all of its substantial shareholding. Additionally, it's not required to retain that shareholding at the time of the sale. However, the company must have had a substantial shareholding for a year within the past six years to qualify for SSE.
Even if you do not meet the 12-month requirement, you may still be eligible for SSE. This can happen if part of a group’s business assets is transferred to a new company.
These rules enable you to transfer a trade into a new subsidiary and sell it immediately, provided the trade operated within the group for at least 12 months. However, a single company cannot form a subsidiary and instantly qualify for SSE. The tax tribunal in the M Group Holdings Case confirmed this fact that a single company is not a group.
Examples
Finch Ltd has dormant subsidiaries. It transfers a division’s trade and assets into a new subsidiary company. It sells the subsidiary and qualifies for SSE because it has been in a group for years.
Reese Ltd struck off its dormant subsidiaries. The company is not in a group. It must therefore wait 12 months before qualifying for SSE after creating a new subsidiary.
As a result, it could make sense to retain a dormant subsidiary if you plan to sell part of your trade later. The low admin costs should far outweigh the potential tax savings.
Obtaining SSE on an asset transfer
You can move assets around a 75% group (51% effective group) on a nil-gain nil-loss basis so that no liability to Corporation Tax on Capital Gains arises on their transfer within the group.
When a company that has received a capital asset on a nil-gain nil-loss basis leaves the group within six years of the transfer, the avoided capital gain comes back into charge. However, this tax charge is added to the gain made by the parent on the disposal of shares in a subsidiary and so can qualify for SSE.
The above exemption also potentially applies to intangible assets, however in the case of goodwill only that which was created or acquired before 1 April 2002.
Planning tips
In order to ensure you obtain the benefits of Substantial Shareholding Exemption, consider the following actions:
Summary
The benefits of Substantial Shareholding Exemption can be game‑changing. They allow you to sell subsidiaries without a tax burden, preserve value, and drive future growth. However, you should always review your group structure early to ensure you take full advantage of this valuable relief.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.