The Substantial Shareholdings Exemption

Source: HM Revenue & Customs | | 19/12/2024

For companies selling shares, the Substantial Shareholdings Exemption (SSE) can mean significant tax relief. Introduced in 2002 and simplified in 2017, this exemption allows qualifying gains on share disposals to go untaxed—provided key conditions are met.

The SSE regime provides that a gain on a disposal by a company of shares (or an interest in shares, or certain assets related to shares) will not normally be a chargeable gain. This is provided the following two conditions are met for disposals on or after 1 April 2017. 

  1. The ‘investing company’ must have held shares in the ‘investee company’ in such number, and for such time, that the shareholding satisfies ‘the substantial shareholding requirement’.
  2. The ‘investee company requirement’ must meet similar ‘trading’ conditions. An exception to this condition was introduced for investments held through an investor company which is itself owned by qualifying institutional investors (“QIIs”). Where 25% or more of the Ordinary Share Capital of the company holding the shares being disposed of is owned by QIIs, the investee company requirement does not apply to the disposal, leaving only the substantial shareholding requirement. 

However, the exemption does not apply if:

  • the disposal is a no gain/no loss disposal, or
  • the gain would not have been a chargeable gain because of some other provision, or
  • the gain arises to an insurance company on a certain type of deemed disposal, or
  • should an anti-avoidance rule apply.

No formal claim is needed. If the conditions for the relief are met, the gain is automatically exempt. However, a loss on a disposal where the conditions for the relief are met is not an allowable loss.

 

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