The Substantial Shareholding Exemption: A breakdown

30th November 2023 | News

The Substantial Shareholding Exemption (SSE) is designed to provide tax relief for companies when they sell shares in another company.

Its primary objective is to encourage business investment and facilitate the efficient transfer of ownership.

The SSE essentially exempts the selling company from paying capital gains tax on the profits derived from the sale of qualifying shares.

This tax relief encourages companies to engage in strategic transactions and restructuring without incurring additional tax liabilities, thus fostering a more dynamic and flexible business environment.

How can SSE work for me?

If you are a business owner, the Substantial Shareholding Exemption (SSE) can be a valuable tool for managing the tax implications associated with selling shares in another company. Here’s a scenario illustrating how SSE might work:

Let’s say you own Company A, and Company A holds a substantial shareholding (typically at least 10%) in Company B. You’ve decided to sell these shares in Company B. If the conditions for SSE are met, you could benefit in the following ways:

Capital gains tax exemption: Normally, when you sell an asset, including shares, you may be liable to pay capital gains tax on any profits. However, under SSE, if your company (Company A) meets the qualifying criteria, it could be exempt from paying capital gains tax on the gains arising from the sale of shares in Company B.

No impact on trading status: Since SSE requires both the selling and target companies to be trading entities or part of a trading group, if both Company A and Company B are actively engaged in business activities, this criterion is satisfied.

Flexibility in business strategy: The SSE can provide flexibility for business owners looking to restructure their investments or divest from certain holdings without the immediate tax implications that might otherwise arise from such transactions.

To make the most of SSE, it’s crucial to ensure that the specific conditions, such as the minimum shareholding percentage and the qualifying holding period, are met.

Business owners should carefully plan and document their shareholding activities to comply with SSE requirements.

However, tax laws and regulations can change, so it’s advisable to consult with a tax professional who can provide up-to-date advice tailored to your specific situation.

The requirements of the SSE

The SSE sets forth specific and detailed criteria for companies aiming to secure an exemption from capital gains tax when selling shares.

Firstly, the selling company must possess a substantial shareholding, which entails holding a minimum of 10% of the voting rights and value of the shares in the target company. This requirement emphasises a significant and enduring investment in the target company.

Moreover, the shares being sold must have been held continuously for a 12-month period within a two-year window leading up to the sale. This stipulation underscores the long-term nature of the shareholding.

Additionally, both the selling company and the target company must operate as trading entities or be members of a trading group, with investment companies generally excluded from eligibility.

The SSE may be unavailable if either company engages in substantial non-trading activities, as the exemption is designed to support businesses primarily involved in trading.

The rules also consider the relationship between companies, particularly their level of connectedness. Changes in ownership or connected status can impact SSE eligibility, adding a layer of complexity to the assessment.

How Williamson & Croft can help

Williamson & Croft is well-equipped to guide and support businesses seeking to leverage the SSE for optimal tax planning.

With a thorough understanding of the SSE criteria, our experienced professionals can assess your company’s eligibility, ensuring that you meet the necessary shareholding percentages, qualifying holding periods, and trading status requirements.

We offer detailed insights into the ever-evolving landscape of tax laws, helping you stay abreast of changes that might impact SSE eligibility.

Whether you’re considering a strategic divestment or navigating complex ownership structures, our tailored advice aims to maximise the benefits of SSE while ensuring compliance with the latest regulations.

Trust our expertise to assist your business in making informed decisions that align with your long-term financial goals. Contact us today.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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