Substantial Shareholdings Exemption (SSE)
- First Choice Accountancy
- 2 days ago
- 4 min read
The Substantial Shareholdings Exemption (SSE) is a key UK corporate tax relief that allows companies to dispose of shares in trading companies without incurring corporation tax on chargeable gains.
Introduced by the Finance Act 2002, SSE was designed to promote investment, facilitate corporate restructuring, and remove tax barriers to commercial transactions.
Conditions for SSE
SSE exempts qualifying gains from corporation tax when a company disposes of shares in another company, provided certain conditions are met:
Minimum shareholding – The investing company (the seller) must hold at least 10% of the ordinary share capital of the investee company. This holding must also entitle it to at least 10% of distributable profits and 10% of assets available to equity holders on a winding-up.
Holding period – The substantial shareholding must have been held for a continuous period of at least 12 months within the six years prior to disposal.
Subsequent disposals – Once an initial disposal qualifies for SSE, any further disposal of shares in the same company within five years of that qualifying disposal will also qualify, even if the shareholding has fallen below 10%.
Prior to 1 April 2017, the selling company was also required to be a trading company or a member of a trading group, but this requirement was abolished for disposals on or after that date.
The investee company must still be a trading company or the holding company of a trading group or subgroup, except in certain cases involving Qualifying Institutional Investors (QIIs).
Trading Requirement
For SSE to apply, the investee company must meet the trading condition throughout the 12 months leading up to the disposal.
This means the company must have been:
A trading company, or
The holding company of a trading group, for that entire period.
If the disposal is made to a connected party, the investee company must also satisfy the trading condition immediately after disposal. For disposals to unconnected parties, there is no post-disposal trading test.
Qualifying Institutional Investors (QIIs)
The Finance (No. 2) Act 2017 introduced significant reforms to the SSE regime, including special rules for Qualifying Institutional Investors (QIIs) .
QIIs include entities such as pension schemes, life assurance businesses, sovereign wealth funds, charities, investment trusts, authorised investment funds, exempt unauthorised unit trusts.
Where at least 25% of the investing company’s ordinary share capital is owned by QIIs, the investee trading condition is waived. This reform was intended to encourage institutional investment by providing tax relief on qualifying share disposals.
If QIIs own 25%–79% of the investing company, a partial SSE exemption applies, proportionate to QII ownership. If QIIs own 80% or more of the investing company, a full exemption applies, even if the investee company is non-trading.
Comparison of Key Conditions
Automatic Relief
SSE applies automatically, no formal claim is required. When a company disposes of shares, it must self-assess whether the SSE conditions (such as the 10% ownership and the trading status tests) are met. If they are, any gain is automatically exempt from corporation tax.
However, it is essential to maintain robust documentation, including:
Records of ownership and shareholding structure,
Evidence of trading status, and
Details of the disposal and any connected parties.
Proper record-keeping helps mitigate HMRC challenges during review or enquiry.
Tax Implications
If SSE conditions are satisfied ,the entire gain is exempt from corporation tax; and It does not need to be included in taxable profits.
There are however restriction on Capital Losses. Where a disposal qualifies for SSE results in a loss, any loss on that disposal is not allowable for tax purposes and such losses cannot be used to offset other taxable gains.
Interaction with Group Relief
SSE operates alongside existing intragroup reliefs. Transfers of shares within a group are generally tax-neutral, and SSE ensures that external disposals of qualifying subsidiaries remain exempt, provided the conditions are met at the time of sale.
SSE can also apply to disposals of shares in non-UK companies, provided the investee meets the trading condition. The location of the investee does not affect qualification. Companies should review relevant double taxation treaties (DTTs) to ensure local taxes do not offset the UK relief.
SSE therefore plays a crucial role in cross-border tax planning, enabling multinational groups to restructure efficiently while remaining compliant with UK tax law.
Speak to an Expert
The Substantial Shareholdings Exemption is a valuable but technical relief. The conditions, particularly around trading status, group structure, and QII ownership can be complex, especially for cross-border or partially exempt groups.
If you are unsure whether your company’s share disposal qualifies for SSE, speak to an expert. Our specialist UK corporate tax advisors can assess your position, confirm eligibility, and help ensure the exemption is applied correctly.
Authored by: London Team
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