Finance (No 2) Act 2017 has simplified the SSE regime. It has removed the ‘investing requirement’ and provides a more comprehensive exemption for those companies that are owned by qualifying institutional investors. F(No 2)A 2017, s 27
Ensuring the conditions for SSE are met is extremely important in disposals of trading subsidiaries. The rules are complex and, in particular, HMRC will often scrutinise the activities of the company / subgroup disposed of (and for disposals before 1 April 2017, the investing company / group) to establish whether the trading activity tests are met.
This is a high-risk area of tax work and only suitably experienced tax practitioners should sign off on SSE issues. For detailed information, see the Introduction to the substantial shareholdings exemption and main conditions guidance note in the Corporate Tax module (subscription sensitive) and the subsequent notes.
It is often advisable to seek HMRC’s opinion via the non-statutory clearance procedure to give comfort where there is ‘material uncertainty’. For disposals before 1 April 2017 and disposals involving connected companies and / or where there has been an intra-group transfer of trading assets, the use of which are needed to meet the pre-disposal trading requirement, it should also be carefully considered and made clear to clients that the trading requirement must be met after the disposal. For guidance, see the Drafting clearance applications guidance note. CG53120
In May 2016, the Government opened a Consultation on reform of the SSE to address the complexity of the SSE which was seen as detrimental to the UK being chosen as a holding company location for multinational companies. As a result, the regime has been reformed for disposals on or after 1 April 2017 by Finance (No 2) Act 2017.