The Substantial Shareholding Exemption (SSE) means a company pays no corporation tax on a gain when it sells shares in another company, if conditions are met. The selling company must have held at least 10% of the ordinary share capital, with matching rights to profits and assets, for a continuous twelve month period beginning within the six years before the sale. The company being sold must be a trading company or the holding company of a trading group. No claim is needed, and losses on qualifying disposals are not allowable.
What is the Substantial Shareholding Exemption?
SSE is a relief from corporation tax on chargeable gains, set out in Schedule 7AC of the Taxation of Chargeable Gains Act 1992. It applies when a company (the investing company) disposes of shares, or an interest in shares, in another company (the investee company). If the conditions are met, the gain is simply not a chargeable gain.
It is only available to companies. An individual selling shares in their own company is dealing with capital gains tax instead, which we cover in our guide to capital gains tax rates.
Do you need to make a claim for SSE?
No. HMRC’s Capital Gains Manual is clear that no claim is required. If the conditions are satisfied, the exemption applies automatically. That cuts both ways: a company cannot choose to ignore SSE in order to use a loss, which is why it matters to check the conditions before a sale rather than after.
What counts as a substantial shareholding?
The investing company must hold at least 10% of the investee company’s ordinary share capital. It must also be beneficially entitled to at least 10% of the profits available for distribution to equity holders and at least 10% of the assets available to equity holders on a winding up.
Shareholdings held by members of the same group of companies are added together when testing the 10% threshold, so a stake split between two group companies can still qualify.
How long must the shares be held?
The substantial shareholding must have been held throughout a continuous twelve month period beginning not more than six years before the day of the disposal. This six year window applies to disposals on or after 1 April 2017. Before that date the twelve month period had to fall within the two years before the sale.
The longer window is helpful. A company that has already sold part of its stake and dropped below 10% can often still sell the remainder free of tax, as long as it held at least 10% for a full twelve months within the previous six years.
What does the trading company requirement mean?
The investee company must have been a trading company, or the holding company of a trading group or trading subgroup, throughout the qualifying holding period. A trading company is one that carries on trading activities and whose activities do not include, to a substantial extent, activities other than trading.
How does HMRC judge “substantial”?
HMRC treats substantial as meaning more than 20%. It looks at several indicators rather than a single test, including:
- turnover from activities other than trading
- the value of assets that are not used for the trade compared with total assets
- expenditure and time spent by officers and staff on activities other than trading
- the company’s history
These are weighed in the round. Surplus cash or investment property held outside the trade can tip the balance.
Does the company still have to trade after the sale?
For disposals on or after 1 April 2017, the investee company generally no longer needs to be trading immediately after the sale. The requirement still applies where the buyer is connected with the investing company, and in one other specialist case linked to the holding period rules.
Does the investing company need to be trading?
Not any more. For disposals on or after 1 April 2017, there are no trading conditions on the investing company or its group. Before then, the seller also had to be a trading company or a member of a trading group. This change made SSE available to investment holding companies that hold qualifying stakes in trading businesses.
Does SSE apply to losses?
It does, and not in the company’s favour. That is the point many businesses miss. Where the conditions are met, a loss on the disposal is not an allowable loss. If a company sells a qualifying shareholding at a loss, it cannot set that loss against other gains. Because SSE applies automatically, there is no way to opt out and keep the loss.
What are the qualifying institutional investor rules?
Since 1 April 2017 there is a further exemption for companies owned by qualifying institutional investors, such as certain pension schemes, insurance companies and charities. Where these investors own 80% or more of the investing company, a disposal can be exempt even if the investee trading requirement is not met. Where they own between 25% and 80%, the gain or loss is reduced proportionately. These rules are specialist and mostly affect investment funds rather than owner managed businesses.
What happens if SSE does not apply?
The gain is a chargeable gain and falls into the company’s profits for corporation tax. Other reliefs may still be relevant, for example where shares are exchanged rather than sold for cash, as explained in our guide to a share for share exchange.
Can HMRC confirm whether a company qualifies?
Where the difficulty is about how HMRC interprets the legislation, rather than a question of fact, a company can ask for an opinion under HMRC’s non statutory clearance service. Questions of fact, such as how much time staff spend on investment activity, have to be settled with evidence. That evidence is exactly what HMRC will ask for if it opens an enquiry into a return that relies on SSE.
Frequently asked questions
Can individuals use the Substantial Shareholding Exemption?
No. SSE only applies to gains accruing to a company. Individuals selling shares pay capital gains tax, subject to their own reliefs.
Can a holding company that only holds investments use SSE?
For disposals on or after 1 April 2017, yes, provided the company it is selling meets the trading requirement and the 10% holding test is satisfied.
Protecting your fees if HMRC asks questions
SSE turns on judgement calls about trading status, and HMRC can challenge them in an enquiry. Solar Protect tax investigation insurance covers up to £100,000 of your accountant’s fees for dealing with HMRC, with no excess. Get a quote today.
Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.