The substantial shareholding exemption exempts the disposal of certain shares in subsidiaries from corporation tax on any capital gain. Most practitioners will be aware of the generous entrepreneur's relief available for individuals and trusts for capital gains tax purposes and that this is not available for companies.

Why does substantial shareholding exemption exist?

The purpose of this subsidiary exemption is to allow the SSE to be available where a target has ceased trading prior to the disposal of its shares. The exemption would apply to any form of disposal but in practice is often claimed in relation to the liquidation of a company.

Does substantial shareholding exemption apply to individuals?

The company can be exempt from corporation tax on the gain. The substantial shareholding exemption was introduced in the 2002 UK Finance Act. It can also apply to pre-transaction structuring. However, this exemption only applies to companies selling shares, not partnerships or individuals.