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SSE changes hailed as ‘positive step’

15th Dec 2016
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Financial graph of shareholdings

Changes to the substantial shareholding exemption as part of the draft Finance Bill 2017 legislation have been welcomed as a positive step by tax experts.

Investment companies will now be able to benefit from the SSE, and companies at least 25% owned by ‘qualifying institutional investors’ will be eligible for exemption on the disposal of any substantial shareholding, irrespective of whether the underlying company is trading.

The changes represent a simplification of the existing SSE rules, and an expansion to the scope of the UK's participation exemption for chargeable gains.


The SSE may apply when a trading company disposes of shares (or interest in shares) it holds in another trading company.  This disposal would normally trigger  a capital gain, but if the SSE  conditions are met there is no taxable gain (but also no qualifying taxable loss).

The exemption was introduced in 2002, and according to taxation expert Pete Miller from The Miller Partnership the official reasoning behind it was to make UK PLC a better place to do business. It allows companies to hive off non-core trading businesses without incurring a large tax bill, and reinvest in their core business.  The theory is that the purchaser takes on this non-core business, which becomes a core activity for them, and improves that business.

Another side to the SSE’s introduction was the fact that corporation tax on gains for bought and sold companies was considered optional in the tax environment of the early 2000s, and most companies could usually plan their way out of them.


A consultation was launched in May 2016 with a view to considering whether changes could be made to the SSE to make it simpler, more coherent and more “internationally competitive”.

The consolation was well responded to, and following the Autumn Statement the government announced that from April 2017 the SSE rules will be simplified, with the changes aimed at increasing the scope of the SSE and removing some of the complexity to assesses eligibility.

The stated hope of the changes is to increase the competitiveness of the UK as a headquarters jurisdiction, against others with flexible participation exemptions, such as the Netherlands and Luxembourg.

What’s changed?

Two fundamental changes announced are:

  • Companies and groups selling trading subsidiaries or sub-groups, will be able to benefit from the SSE, even if the vendor is not a trading group or company. Previously, the vendor had to be a trading company or a member of a trading group.
  • Companies that are at least 25% owned by qualifying institutional investors will be eligible for exemption (or partial exemption) on the disposal of any substantial shareholding irrespective of whether the underlying company is trading. This is an entirely new relief.

Changes welcomed

The relaxation of some of the SSE conditions has been broadly welcomed by tax experts as removing a number of snares that have made the SSE difficult to operate in practice. In particular the removal of the trading status requirements has been hailed as a useful simplification.

It has also been observed that the new exemption is surprisingly broad in scope, with virtually no restrictions on the type of company or gain that can qualify.

Expert opinion

Tax expert Pete Miller called the changes to the SSE “very good news” for business.

“A major difficulty with multi-national groups is that it is difficult to know whether it is a trading group, because it can be difficult to analyse all its global activities, so this makes the exemption much simpler to operate”, said Miller.

“It will free many owner-managed businesses from a corporation tax burden that they can ill afford in these economically difficult times”, he added.

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