LAM03720 - Calculation of ‘I’ Income and chargeable gains: Transactions in shares: substantial shareholdings exemption (SSE) TCGA92/SCH7AC
Background and summary
Since April 2002, most corporate sales of trading companies where the holding exceeds 10% have been entitled to the substantial shareholdings exemption (SSE). The policy aim was to take out of the tax charge assets that were not part of an investment portfolio or trading operation and more in the nature of structural business assets. (To be updated for Finance Bill (no.2) 2017)
CG55300 onwards explains the SSE provisions in TCGA92/192A and TCGA92/SCH7AC.
Specific rules were developed for life companies to reflect the fact that, although they have investment portfolios taxable as chargeable gains in BLAGAB, they may have holdings in excess of 10%. These may still be portfolio investments and should not therefore benefit from the exemption. In practical terms, it will also limit the number of potential claims for SSE. A life insurer could also have long-term business fixed capital (LTBFC) assets within the chargeable gains regime that SSE applies to.
The principal differences in the rules for life companies are:
- for assets backing long-term insurance business the qualifying threshold for SSE to apply to a holding is 30% not 10% TGCA/SCH7AC/PARA17(1).
- the 30% can include holdings not backing long-term business for tax purposes e.g. LTBFC or general insurance business assets TCGA92/PARA17(2).
- long-term business assets are ring fenced from any calculation of the group holding for SSE purposes TCGA92/SCH17AC/PARA9(2)/PARA17(4).
- the 30% limit also applies to disposals by 51% subsidiaries of the life company if held directly or indirectly for purposes of long-term business TCGA92/SCH17AC/ PARA17(3).
- SSE does not apply to a box transfer LAM03210 between categories within the life company TCGA92/SCH7AC/PARA6(1)(c)
- SSE can apply to a transfer from a life company to another group company see LAM03730 for further explanation of interaction between share exchange rules, SSE and box transfer rules.
- gains on derivatives and options over shares are also subject to special rules when held by life companies, including the minimum 30% holding for SSE to apply.
Points 1-5 are covered in the examples below. Further details on points 6 and 7 are explained further in LAM03730 and LAM03740.
SSE Examples: Holdings backing long-term business and holdings held as LTBFC within the life company
Example 1
| Holding | % | SSE applies? |
|---|---|---|
| Long-term business holding | 15% | No overall holding |
| LTBFC/general insurance business holding | 8% | Yes, can take account of long-term business holding so total holding > 10% |
If the 8% holding was instead in another group company, it could not take into account the life company holding to reach the 10% threshold.
Example 2
| Holding | % | SSE applies? |
|---|---|---|
| Long-term business holding | 25% | Yes, overall holding in the company > 30% |
| LTBFC/general insurance business holding | 12% | Yes, holding > 10% with or without long-term business holding |
In example 2, if the 12% was held in another group company, it could not be taken into account by the life company in calculating whether the 30% threshold was met.