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Upper Tribunal Ruling: SSE denied for hive-downs

The Upper Tribunal recently held that a company which transferred its business by way of hive-down, may not be able to claim SSE unless the shares were held in the new company for more than 12 months.

Read on to find out more.

Background to SSE and hive downs

Substantial Shareholding Exemption (SSE) is a tax relief that applies automatically when a parent company ('HoldCo') sells a substantial shareholding (10% or more) in a trading company that has been held for at least 12 months in the 6 years before disposal. Where SSE applies, any capital or de-grouping charge arising on sale of the shares is 'exempt' from corporation tax.

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Devon Buffoni

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Background to SSE and hive downs

SSE is a useful tool for any tax adviser undertaking corporate restructuring, including pre-sale 'hive- downs', where assets are transferred to a wholly owned newly incorporated company ('NewCo') before being sold to a purchaser with the resulting gain exempt from tax.

Normally, HoldCo will not have held the shares in NewCo for at least 12 months before being sold. SSE legislation permits the time the assets were used in a trade carried on 'by a group member' to count towards the 12-month holding period. However, as the recent Upper Tribunal judgement in M Group Holdings Limited v HMRC (2023) has shown, SSE will not apply to all hive-downs.

Upper Tribunal judgement – M Group Holdings Ltd v HMRC (2023)

In M Group Holdings Ltd v HMRC (2023), a single trading company ('TradeCo') transferred its business through a hive down to a wholly owned NewCo and sold it 11 months later.

The Upper Tribunal determined that the legislative extension permitting the time assets were used by another group member does not cover the scenario where TradeCo forms a new company ('NewCo'), transfers trading assets to it, and sells it within 12 months of ownership. This is because the assets were not utilised in a trade conducted by any member of the group for at least 12 months before the sale; because prior to the incorporation of NewCo, no 'group' existed.

Going forward

The judgement has wider implications for stand-alone company structures, not only pre-sale hive-downs but also other contemplated corporate restructuring such as de-mergers which often make use of the SSE provisions.

Speak to an expert

Companies looking to undertake any corporate restructure should obtain tax advice to verify the availability of any tax reliefs or exemptions, including SSE.

We can work with you to optimise the tax efficiency of contemplated corporate reorganisations, while avoiding such pitfalls. We also offer tax advice that is personalised to your specific circumstances. Discover how we can work together by filling the form below.