What is the substantial shareholding exemption?
Answered 11 March 2026
Here is a comprehensive explanation of the Substantial Shareholding Exemption (SSE):
The Substantial Shareholding Exemption (SSE)
What the law says
The SSE is contained in Schedule 7AC to TCGA 1992, introduced by s.44 and Schedule 8 of the Finance Act 2002. The core rule is that a gain accruing to a company on a disposal of shares (or an interest in shares) in another company is not a chargeable gain if the requirements of Schedule 7AC are satisfied.
Importantly, no claim is required — if the conditions are met, the gain is automatically exempt.
The exemption applies where two conditions are met (three conditions for disposals before 1 April 2017):
1. The Substantial Shareholding Requirement (para. 7–17, Sch. 7AC)
The investing company must hold at least 10% of the investee company's ordinary share capital, and be entitled to at least 10% of the profits and assets available for distribution to equity holders. This holding must have been maintained throughout a continuous period of at least 12 months.
For disposals on or after 1 April 2017, the 12-month period must end no more than five years before the date of disposal (extended from one year by F(2)A 2017).
An exception for Qualifying Institutional Investors (QIIs) was introduced by F(2)A 2017: a shareholding of £20m can qualify as a substantial shareholding even where it is less than 10% of the ordinary share capital.
2. The Investee Company Requirement (para. 19, Sch. 7AC)
The company whose shares are being disposed of must be a trading company or the holding company of a trading group or subgroup. Its activities must include trading activities and must not, to a substantial extent, include non-trading activities.
This investee company requirement is disapplied where 25% or more of the ordinary share capital of the investing company is owned by QIIs (for disposals on or after 1 April 2017).
The Investing Company Requirement (abolished from 1 April 2017)
For disposals before 1 April 2017, the investing company also had to be a trading company or member of a trading group. S.27 F(2)A 2017 removed this requirement entirely for disposals on or after 1 April 2017.
Losses
Losses on disposals meeting the SSE conditions are equally not allowable losses.
Anti-avoidance
The exemption does not apply where the anti-avoidance rule in paragraph 5 of Schedule 7AC applies, which targets tax-driven arrangements designed to exploit the exemptions.
HMRC guidance / practice
HMRC's Capital Gains Manual confirms the SSE regime provides that a gain on a disposal by a company of shares (or an interest in shares, or certain assets related to shares) will not normally be a chargeable gain provided the conditions above are met.
Scope of the exemption: It is not necessary that the shares to which the exemption applies are the ordinary shares to which the substantial shareholding condition applies. For example, if the substantial shareholding condition is met in relation to ordinary shares, a sale of fixed-rate preference shares in the same company is also exempt, regardless of the percentage held or the period of ownership.
Group aggregation: Shareholdings held by members of the same group can be aggregated when testing whether the substantial shareholding requirement is met.
No gain/no loss transfers: Where shares were acquired via an intra-group no gain/no loss transfer, the holding period is traced back through the series of transfers to determine whether the 12-month requirement is met.
Tranche disposals: A company that has held a substantial shareholding for at least 12 months and then sells shares in tranches continues to meet the substantial shareholding requirement for five years after the holding falls below 10% (for disposals from 1 April 2017).
Anti-avoidance: HMRC expects cases where the anti-avoidance rule is in point to be "unusual and infrequent".
Citation sources
TCGA1992/Sch7AC/Para 10 contains the rules for no gain/no loss transactions. Where the company making the disposal of the shares acquired them by way of a no gain/no loss transfer, the period over which it is treated as if it held the shares is extended back through any series of such transfers. Also, the company making the disposal is treated as having been entitled to the rights enjoyed by the holders of the shares over this period. In certain circumstances the normal no gain/no loss rule in T
Section 44 and Schedule 8 Finance Act 2002 introduced the substantial shareholdings exemption legislation. Subsection (1) of section 44 Finance Act 2002 inserted a new section 192A into TCGA 1992. Section 192A TCGA 1992 simply provides that Schedule 7AC TCGA 1992 has effect. Section 44(2) Finance Act 2002 provides that Schedule 8 Finance Act 2002 has effect. That Schedule is in two Parts: Part 1 of Schedule 8 contains paragraph 1 of that Schedule which inserted Schedule 7AC into TCGA 1992. Sched
For disposals on or before 31 March 2017, paragraph 7 Schedule 7AC TCGA 1992 provided for a period of one year during which a company that has held a substantial shareholding for at least 12 months will continue to count as meeting the substantial shareholding requirement after the holding falls below 10%. This is to allow a company that has met the substantial shareholding requirement to benefit from the exemption if it sells the shares in tranches over a period of time. This period was extende
The substantial shareholdings exemption regime provides that a gain on a disposal by a company of shares (or an interest in shares, or certain assets related to shares) will not normally be a chargeable gain provided two conditions are met. For disposals before 1 April 2017, there were three conditions. The ‘investing company’ must have held shares in the ‘investee company’ in such number, and for such time, that the shareholding satisfies ‘the substantial shareholding requirement’. The ‘investi
Paragraph 1 Schedule 7AC TCGA 1992 contains the main exemption of the substantial shareholdings exemption regime. It provides that a gain accruing to a company (‘the investing company’) on a disposal of shares or an interest in shares in another company (‘the company invested in’) is not a chargeable gain if the requirements of Schedule 7AC are satisfied. These are the substantial shareholding requirement (see CG53070 onwards), and the requirements to be met by the investing company (For disposa
Part 3 of Schedule 7AC TCGA 1992 (paragraphs 18 to 25) contains the rules relating to the requirements that must be met by both the ‘investing company’ (the company making the disposal). These requirements do not apply to disposals on or after 1 April 2017. and the ‘investee company’ (the company whose shares are being disposed of - note that although ‘investee company’ is used to identify that company in this guidance the name actually given to that company in the legislation is ‘the company in
The regime in schedule 7AC TCGA 1992 (‘schedule 7AC’) for the exemption of gains on disposals of substantial shareholdings will apply to disposals of shares (or an interest in, or an asset related to shares) by companies which have held a substantial shareholding for at least 12 months where: the company holding the shares (or an interest in, or an asset related to shares) is a trading company or a member of a trading group, and the shares in question are shares in a trading company or the holdi