Partner David Few, in our Corporate & Commercial team, looks at the Substantial Shareholdings Exemption from corporation tax for capital gains and losses realised on the disposal of certain shareholdings.
The Substantial Shareholdings Exemption (“the SSE”) provides an exemption from corporation tax for capital gains and losses realised on the disposal of certain shareholdings. It was introduced in 2002 and was motivated by two principal concerns around the application of a corporation tax charge to share disposal gains.
The first concern was that a corporation tax charge on share disposal gains could be unduly influencing business decisions on restructuring and reinvestment. For example, a UK holding company with significant capital gains would be deterred from making a productive disposal. The second concern was that a corporation tax charge on share disposal gains could be creating incentives for groups to adopt complex offshore holding structures, reducing transparency and creating unnecessary administrative burdens for businesses and HMRC. The SSE was designed to address these two concerns, with its application broadly limited to gains realised by trading groups on the disposal of shares in trading companies.
Due to the government’s continued focus on simplifying the UK tax regime and the significant developments in the UK and international corporate tax landscape since the SSE was first introduced, it was no surprise that over the summer the government consulted on the extent to which the SSE was still delivering on its original policy objective.
Following the consultation, the government announced that from April 2017 the SSE rules will be simplified. No detail has yet been made available, but in broad terms it is stated that the conditions that are currently applicable to investors will be removed and an exemption for institutional investors will be introduced.
Simplification of the SSE can only be seen as a welcome change and the developments should increase the scope of the relief and remove some of the complexity to assessing eligibility, thereby increasing the competitiveness of the UK as a headquarters jurisdiction.
We will continue to keep you updated as more details become available as to the exact changes to the SSE.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
