Substantial shareholdings exemption (SSE) meaning

If companies A, B and C are within the same capital gains group, and company A passes its shares in company B to company C in return for an issue of shares by company C to company A, the transaction can have the following tax effects: any chargeable gain potentially arising to company A could be exempt under the substantial shareholdings exemption (SSE) in Schedule 7AC to the Taxation of Chargeable Gains Act 1992 (TCGA 1992). For guidance on when the SSE applies to a disposal of shares, see Practice Note: Substantial shareholdings exemption for tax purposes, the share exchange might be treated as not involving a disposal by company A of its shares in company B, provided the conditions in TCGA 1992, s 135 are met and the anti-avoidance condition in TCGA 1992, s 137 does not apply...

The way consideration payable for buying shares is arranged is rarely simple or linear, and can vary considerably. In many situations payment is postponed, deferred, or made conditional on a particular contingency being satisfied. Selling shareholders will look to maximise the overall price for their shares while also seeking to limit, so far as possible, any tax on disposal by: making full and efficient use of available reliefs to cut or remove any charge, and/or delaying the point in time at which any such tax becomes due However, where the consideration is deferred, the seller can become liable to tax immediately on an amount not yet received (a ‘dry’ tax charge). In calculating chargeable gains, no discount is usually allowed in respect of any consideration that is ascertainable at the date of disposal, even where it is: deferred subject to a contingency, or at risk of not being received for any reason Where any deferred...

Before disposing of a business or trade When planning a disposal, a corporate seller must choose the most suitable deal structure. Commercial drivers should lead, yet securing a tax-efficient outcome will inevitably be a key concern. The initial choice is whether to transfer: the business and its underlying assets (a business sale), or the shares in a subsidiary that holds the business and assets (a share sale) Broadly, sellers tend to prefer a share sale: it offers a straightforward exit and, where the substantial shareholdings exemption (SSE) applies, any gain is exempt from tax. An asset deal is more likely to crystallise tax charges and leaves any pre-completion tax liabilities with the seller. This Practice Note does not address individual sellers or business asset disposal relief (BADR). For more on BADR, see Practice Note: CGT—business asset disposal relief (formerly entrepreneurs' relief)...

The substantial shareholdings exemption (SSE) removes corporation tax on chargeable gains arising on certain disposals of shares by companies. It does not extend to individuals or other non-corporate bodies. The purpose is to simplify corporate restructuring and strengthen the UK’s competitiveness against the ‘participation exemption’ regimes found in some other European countries. Under the general rule that an exempt asset’s disposal cannot create an allowable loss, any loss realised on a shareholding that qualifies for SSE is not allowable for capital gains. The exemption applies automatically; there is no requirement to claim it, and no option to disapply it where a loss claim would be beneficial. This Practice Note sets out the scope of the SSE, the conditions that must be satisfied, and the specific rules for institutional investors, company groups, share exchanges and reconstructions. Summary of conditions A company (the investing company) disposing of a holding in another company (the target company) may meet the SSE requirements...