One of the areas due to be examined in the Advanced Tax exam is the substantial shareholding exemption. (SSE)

It is firstly important to note that this is only available to companies to encourage mergers and acquisitions.

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 prior to the disposal

3.  The shares disposed 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.

If anticipating a gain, recommend the company sells the shares after 12 months so that the SSE applies.

However, if a capital loss arises, this capital loss is not available for offset against other capital gains which is a tax disadvantage.

If anticipating a capital loss, recommend the company sells the shares after less than 12 months so that the SSE does not apply and the loss is preserved.  

It is not possible to make an election to disapply the SSE.

The SSE is not available to individuals or unincorporated businesses.

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