When a company sells shares in another business, there’s normally corporation tax to pay on any profit. But under certain rules, called the Substantial Shareholdings Exemption (SSE), that tax bill can be reduced to zero.
This exemption is designed to make it easier for companies to reorganise, sell subsidiaries, or free up cash for future growth without being hit by a large tax charge.
How Does It Work?
If your company owns at least 10% of the shares in another trading company, and has done so for at least 12 months, then any gain made when you sell those shares could be completely tax-free.
In other words: instead of losing part of the profit to corporation tax, your business keeps it all.
The Main Conditions
To qualify for SSE:
- Shareholding test – Your company must have owned at least 10% of the ordinary shares for 12 months.
- Trading test – Both your company and the one you’re selling must be “trading” (i.e. not just holding investments).
- Timing – The shares must have been held within the last 6 years, so there is some flexibility around disposals.
Why It Matters
- Keep more profit – No corporation tax means more cash left in the business.
- Easier restructuring – Selling or reorganising parts of a group becomes more straightforward.
- Reinvest in growth – The full proceeds can be used to fund expansion or acquisitions.
A Simple Example
Imagine your company set up a subsidiary to run a side business. After running it for a few years, you decide to sell. Because you owned more than 10% of the shares for over a year, and both businesses are trading, you could sell that subsidiary without paying any corporation tax on the gain.
Final Thoughts
The Substantial Shareholdings Exemption is a valuable relief, but timing and structure are important. If you’re considering selling part of your business, planning ahead can make all the difference.
At AJN Accountants, we can review your situation and help you decide the best approach to make sure you don’t pay more tax than you need to.
