Substantial Shareholdings Exemption (SSE) UK Guide

When it comes to selling part of your company, one of the most important questions is how much Corporation Tax you’ll need to pay on the sale.

That’s where the Substantial Shareholdings Exemption (SSE) comes in. Introduced by HMRC in 2002, this exemption can allow companies to sell shares in other companies without incurring Corporation Tax on the gain, provided specific qualifying conditions are met.

SSE is a valuable relief for UK holding companies and group structures, offering flexibility when restructuring, disposing of subsidiaries, or reinvesting proceeds. However, determining whether a transaction qualifies requires a clear understanding of the conditions and time limits involved.

In this complete guide, we’ll explain:

• What the Substantial Shareholdings Exemption (SSE) is and why it matters
• The qualifying conditions for both the investing and investee company
• Practical examples of how SSE works in real scenarios
• Common pitfalls and planning tips to help you apply the rules correctly

By the end, you’ll have a clear understanding of how SSE works, when it applies, and how it can benefit your business when selling or reorganising shareholdings.

For the official HMRC guidance, see HMRC’s Capital Gains Manual CG53000P and HMRC’s Corporate Intangibles Research and Development Manual CIRD42000.

What is the Substantial Shareholdings Exemption?

he Substantial Shareholdings Exemption (SSE) is a UK Corporation Tax relief that allows a company to dispose of shares in another company without paying tax on any capital gain, provided certain qualifying conditions are met.

This exemption, introduced by Schedule 7AC of the Taxation of Chargeable Gains Act 1992, is designed to promote business flexibility and encourage corporate investment. It’s particularly valuable for:

• Groups of companies undergoing restructuring or reorganisation
• Businesses divesting subsidiaries or spin-offs
• Startups and investors planning a future exit strategy

When the conditions are satisfied, the gain on the disposal of qualifying shares is entirely exempt from Corporation Tax. In practice, this can mean a 0% tax charge on the transaction – allowing companies to retain and reinvest more capital to fund future growth.

For HMRC’s detailed interpretation of SSE, refer to the Capital Gains Manual (CG53000P).

The Qualifying Conditions for SSE

For a disposal of shares to qualify under the Substantial Shareholdings Exemption, three key conditions must generally be met:

1. The Substantial Shareholding Test

The company making the disposal must have held at least:

• 10% of the ordinary share capital in the other company
• 10% of the profits available for distribution to equity holders
• 10% of the assets available on a winding-up

These shares must have been held for a continuous period of at least 12 months during the six years prior to the disposal date.

2. The Trading Company or Trading Group Test

At the time of disposal:

• The company being sold must be a trading company or the holding company of a trading group, and
• The disposing company must also be a trading company or a member of a trading group.

This ensures the exemption only benefits businesses involved in genuine commercial trading activity rather than those holding passive investments.

3. UK Residency and Corporate Status

Both the disposing company and the company being disposed of must be subject to UK Corporation Tax and meet the requirements of corporate status under UK tax law.

Examples of SSE in Action

To understand how the Substantial Shareholdings Exemption (SSE) operates in practice, it’s useful to look at a few simplified examples. These illustrate when the exemption applies-and when it does not.

Example 1 – Group Restructuring

A UK parent company owns 100% of a trading subsidiary. After holding the shares for five years, the parent decides to sell the subsidiary to an external buyer.

Because the parent company:

• Held more than 10% of the subsidiary’s ordinary share capital,
• Owned the shares for at least 12 continuous months within the last six years, and
• Both the parent and subsidiary are trading companies (or part of trading groups),

the gain on disposal is fully exempt from Corporation Tax under the Substantial Shareholdings Exemption.

This type of transaction is common during group restructures or corporate disposals, and SSE ensures that businesses are not penalised for reorganising their group structure.

Example 2 – Investment Company (Not Trading)

A company acquires a 15% shareholding in another business but operates solely as an investment vehicle, holding shares and earning dividends without conducting any trading activity.

When the company later sells its shares, the SSE does not apply, because the trading company or trading group condition is not met.

This example highlights that SSE is not available to investment or holding companies that lack active trading operations, even if they meet the 10% shareholding and holding period tests.