Upper Tribunal dismisses taxpayer's appeal in  substantial shareholding exemption case

08 November 2023

In M Group Holdings Ltd v HMRC [2023] UKUT 213 (TCC), the Upper Tribunal (UT) has upheld the decision of the First-tier Tribunal (FTT), which found that a company was not entitled to benefit from the substantial shareholding exemption (SSE) as the shareholding had only been held for eleven months, as opposed to the required twelve months. Paragraph 15A, Schedule 7AC, Taxation of Chargeable Gains Act 1992 (TCGA) (which extends SSE relief when assets have been transferred within a group), was found not to apply.


M Group Holdings Ltd (MGH) traded as a stand-alone company prior to June 2015. It provided services to hospitals and clinics under various NHS contracts. 

In June 2015, Medinet Clinical Services Ltd (MCS) was incorporated as a wholly owned subsidiary of MGH. MGH then disposed of its trade and assets to MCS. In May 2016, MGH sold the entire issued share capital of MCS to a third party. In its company tax return, it claimed that the gain made from the sale of MCS benefited from SSE, and so it was not liable to pay corporation tax on the gain. 

In 2019, HMRC notified MGH that SSE did not apply to the gain and it was therefore liable to pay corporation tax on the gain. 

MGH appealed to the FTT. 

FTT decision 

The appeal was dismissed.

To qualify for SSE, the investing company must hold a substantial shareholding in the company invested in for a twelve-month period prior to disposal. The FTT found that MGH did not meet this condition, having only held the substantial shareholding for a period of eleven months between June 2015 and May 2016 (the relevant period), before the disposal. 

MGH argued that it met the requirements for SSE relief as it fell within a 'look through' provision contained in paragraphs 15A(2)(d) and 15A(3), Schedule 7AC, TCGA, which allows the period of ownership to be treated as extended if, in the 12 months prior to disposal, the asset was used by a 'member of the group for the purposes of a trade'.   

The FTT agreed with HMRC that in order for paragraph 15A(2)(d) to be satisfied, there must have been a group in place at the relevant time. Before MCS was incorporated, MGH was a standalone company, and there was no group. The holding period could not therefore be extended under paragraph 15A to a time before MCS was incorporated, which was only 11 months before the disposal. On that basis, SSE relief was not available.

MGH appealed to the UT.

UT decision 

The appeal was dismissed.

Before the UT, MGH submitted that it alone constituted a group, arguing that a group can consist of a single company. It argued that to correctly understand paragraph 15A(2)(d), words should be in read in to the legislation so that a stand-alone company fell within its provisions, otherwise it would be an obvious mistake to discriminate against a stand-alone company given that the extension would apply to a company which had a dormant subsidiary to which it had transferred assets. 

The UT dismissed this argument. In its view, the word 'group' should be given its ordinary and natural meaning and therefore there has to be more than one company to form a group. The UT also stated that the purpose of the legislation was to provide SSE relief for a group of companies and not for stand-alone companies. The UT therefore concluded that there was no drafting error which required words to be read in to the legislation.  

MGH also argued that the intention of the extension was that SSE should apply given that the assets were used for trade throughout a 12-month period. MGH submitted that the wording of the legislation does not require the same group to have been in existence throughout the 12-month period. The UT also rejected this argument. The corporate structure is of relevance as the purpose of the extension is to allow a group of companies to be able to benefit from SSE.


This decision confirms that the SSE extension, under paragraph 15A, Schedule 7AC, TCGA, will not apply to a stand-alone company and only applies to a group structure. Companies should bear in mind the relevant time-frames necessary in order to benefit from SSE relief. Whilst the reasoning as to why MGH sold the shareholding at eleven months instead of twelve months is unclear, if it had waited an additional month, it would have qualified for SEE relief and saved a corporation tax bill in excess of £10 million. 

A standalone company may wish to consider forming a dormant subsidiary, so that there is a group in case one is needed at a future date to take advantage of paragraph 15A. However, there are potential anti-avoidance rules which may mean such a structure is disregarded when considering paragraph 15A, including the targeted anti-avoidance provision in the substantial shareholding exemption at paragraph 5, Schedule 7AC, TCGA. Careful consideration should be given to the structure to ensure that all necessary conditions are satisfied when submitting an application to HMRC for SEE relief. 

The decision can be viewed here.

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