One of the areas frequently examined in the Advanced Tax exam is the substantial shareholding exemption. (SSE) . You can use the abbreviation in the exam.
It is firstly important to note that this is only available to companies to encourage mergers and acquisitions.
The substantial shareholding exemption does not apply to sales of shares by individuals.
When a company sells shares that satisfy 3 conditions, the shares are automatically eligible for the SSE.
1. Must own at least 10% ordinary share capital
2. The 10% must be owned for a continuous period of 12 months within the previous 6 years before the disposal
3. The shares disposed of must be in a trading company
There is no requirement to own 10% at the actual date of disposal.
As a result of the SSE, any gain arising on the shares will be tax-free which is a tax advantage.
However, if a capital loss arises, this capital loss is not available for offset against other capital gains which is a tax disadvantage.
It is not possible to make an election to disapply the SSE.
This means that if you are expecting a gain, you should try and retain the shares for 12 months in order to escape paying tax on the gain.
Alternatively, if anticipating a capital loss, try and dispose of the shares after less than 12 months to avoid the SSE and preserve the capital loss.
Capital losses must be offset against capital gains in the same period after which unused capital losses can only be carried forward against future capital gains. Capital losses cannot be carried back against previous gains.
If you are planning on doing Advanced Tax in June 2024, I recommend you purchase Advanced Tax Condensed which will allow you to learn the technical rules very quickly using accelerated learning techniques. If you then practice the key questions I recommend, you too will be ready for anything the examiner throws at you.
The book will really make the difference. You can purchase it using the link below:
Recent Comments