What is the Substantial Shareholding Exemption (SSE) and when does it apply?

Full answer

The Substantial Shareholding Exemption (SSE) is a Corporation Tax relief that exempts a chargeable gain when one company disposes of shares in another. It exists so that genuine corporate group restructurings and disposals of trading subsidiaries are not taxed at the company level. Note this is a company relief -- it does not apply to individuals, who instead use Capital Gains Tax rules and reliefs such as Business Asset Disposal Relief. The core conditions are: the investing company must have held a 'substantial shareholding' -- broadly at least 10% of ordinary share capital, with entitlement to at least 10% of profits available for distribution and 10% of assets on a winding up -- for a continuous period of at least 12 months within the six years immediately before the disposal. In addition, the company being sold (or the group/subgroup it heads) must be a trading company or trading group. If the conditions are met, the gain is exempt and, symmetrically, a loss on the disposal is generally not allowable. Who this affects: trading groups disposing of subsidiaries, and companies selling a stake in another trading company. It does not cover disposals of investment companies or shares held purely as passive investments below the 10% threshold. Worked example: a UK holding company sells its 100% trading subsidiary for a GBP 5 million gain. If the 12-month holding and trading conditions are satisfied, SSE applies and no Corporation Tax arises on that GBP 5 million -- versus a 25% main-rate charge that could otherwise apply to a company with profits above GBP 250,000. 2026/27 note: Corporation Tax remains 19% on profits up to GBP 50,000 and 25% above GBP 250,000, with marginal relief between, so SSE can be very valuable. The detailed legislation is complex; confirm the trading and holding tests against current HMRC guidance and take professional advice before relying on it.

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