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Good news in the last budget if you want to sell a subsidiary or trade from within a group of companies – changes to the Substantial Shareholders Exemption rules

Mr Hammond, in his recent budget, has made some rather helpful tax changes for those seeking to sell trading subsidiaries or part of a business by simplifying the Substantial Shareholders Exemption.

HammondSubstantial Shareholders Exemption (‘SSE’)

SSE allows companies to dispose of subsidiaries without paying corporation tax on any capital gain arising from the sale. As ever there are some key tests to be met to qualify for SSE. They have been: i) that the disposing company held more than 10% of the ordinary share capital; ii) that the disposing company is a sole trading company or member of a trading group, and; iii) the company being sold is also a trading company.

Before the changes, you also had to have held the shares for a continuous period of 12 months beginning not more than 2 years before the date of sale.

Issues with the “trading” test

SSE is not available if the disposing company fails to meet the test as a “trading” company or group. This used to mean then if any more than 20% of its activities (on various tests) were non-trading investment activity then you wouldn’t get the exemption.

Take advice

The above is a fair summary of the key aspects of SSE. But it’s an oversimplification and there are quite a few more detailed conditions to SSE. Do talk to a tax expert before trying this yourself!


The key simplifications to SSE which greatly facilitate deal structuring are that the “trading” test only has to be met in the subsidiary with effect from 1 April. This latter point would mean, for example, that in a group with only 30% “trading” versus 70% “investment” activity the trade one could hive down the trade to a subsidiary, dispose of it, and qualify for SSE.

Post-2002 Goodwill

There’s always a catch. And in this case, it applies to the disposal of a subsidiary where some or all of the valuation is “goodwill”. If that goodwill was created post-2002, it’s not impossible, but more difficult to do this without incurring a tax charge. If you’re in this position please get a business tax expert to walk you through the requirements.


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