ACCA Advanced Taxation (ATX) Practice Exam

Under what circumstances is prior shareholding relevant for SSE?

1. If it is less than 10%

2. If it is more than 12 months

3. If it is for a continuous 12 months

4. If it relates to a trading partner

The correct answer is: If it is for a continuous 12 months

To understand the relevance of prior shareholding in the context of Substantial Shareholding Exemption (SSE), it is important to recognize that SSE allows certain gains on the disposal of shares to be exempt from capital gains tax. One of the key conditions under SSE is the holding period of shares. In this case, the emphasis on "a continuous 12 months" is crucial. For SSE to apply, a significant condition is that the entity must have held at least 10% of the shares in the company for a continuous period of at least 12 months in the two years prior to the disposal. This continuous holding ensures that the investor is genuinely committed to the company, rather than engaging in short-term trading, which aligns with the rationale behind the exemption. By focusing on a continuous 12-month period, it allows for a clear assessment of the stability and size of the investment, reflecting a more permanent interest in the company. This helps to differentiate between passive investments and active, long-term holdings which are the focus of SSE benefits. In contrast, shareholding percentages alone do not capture the intent and commitment level of the investor, which is why prior shareholding of less than 10%, arbitrary durations, or relationships with trading partners do not fulfill