Hidden bonus for M&A lost in the detail of Budget

Hidden bonus for M&A lost in the detail of Budget

At first glance, there’s not much of interest for M&A in the budget. But unreported by the mass media there’s a hidden nugget for deal doers.

The Chancellor has come up with some really rather helpful tax changes for those seeking to sell trading subsidiaries or part of a business by simplifying the Substantial Shareholders Exemption.

Substantial Shareholders Exemption (‘SSE’)

SSE allows companies to dispose of subsidiaries without paying corporation tax on any capital gain arising from the sale.  The key tests required to qualify for SSE have been:
i) that the disposing company held more than 10% of the ordinary share capital;
ii) that the disposing company is a sole trading company or member of a trading group, and;
iii) the company being sold is also a trading company.  


Before the changes, you also had to have held the shares for a continuous period of 12 months beginning not more than 2 years before the date of sale.

SSE is not available if the disposing company fails to meet the test as a “trading” company or group. And basically, this used to mean then if any more than 20% of its activities (on various tests) were non-trading investment activity then you wouldn’t get the exemption.

Health warning

The above is a good summary of the key aspects of SSE. But of course it’s a sweeping oversimplification and there are quite a few more detailed conditions to SSE. Do talk to a tax expert before trying this yourself!


The key simplifications to SSE which greatly facilitate deal structuring are that the “trading” test only has to be met in the subsidiary with effect from 1 April. This latter point would mean, for example, that in a group with only 30% “trading” versus 70% “investment” activity the trade one could hive down the trade to a subsidiary, dispose of it, and qualify for SSE.    

Post-2002 Goodwill

There’s always a catch.  And in this case, it applies to the disposal of a subsidiary where some or all of the valuation is “goodwill”. If that goodwill was created post-2002, it’s not impossible, but more difficult to do this without incurring a tax charge. If you’re in this position please get in touch we can get our business tax experts to walk you through the requirements.


Talk to PEM's tax team for further advice on these changes to SSE.


Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.

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