The substantial shareholdings 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 in TCGA 1992, Sch 7AC has been amended, with effect from 1 April 2017, by F(No 2)A 2017, ss 27–28. This guidance note covers both the previous regime and the new regime.
SSE applies to qualifying disposals made on or after 1 April 2002 and is triggered where the investing company has held a substantial shareholding in the investee company for a continuous period of 12 months during the two years prior to disposal or, for disposals after 1 April 2017, the six years prior to disposal. TCGA 1992, Sch 7AC, paras 1, 7
A shareholding is substantial if the investing company:
- owns no less than 10% of the investee company’s ordinary share capital
- is beneficially entitled to no less than 10% of the profits available for distribution to equity holders of the company
- would be beneficially entitled on a winding up to no less than 10% of the assets of the company available for distribution to equity holders
TCGA 1992, Sch 7AC, para 8 notes that the conditions extend to an interest in shares. This means that a co-owner can be entitled to the exemption whether the shares are held in common or jointly, and in whatever proportion.
Reform of SSE
The new rules introduced by F(No 2)A 2017 apply to qualifying disposals made on or after 1 April 2017.
The main drivers behind the reform of SSE were to make it simpler, more coherent and more competitive, internationally. Promoting and maintaining the UK as an attractive location for international holding companies would seem to be particularly pertinent following the UK’s decision to leave the EU following the referendum in June 2016.