Reform of substantial shareholdings exemption: Finance Bill provisions

Background

In December 2016, the Government released a consultation response document setting out its plans to reform the substantial shareholdings exemption (SSE). Whilst the Government rejected calls for the introduction a broader participation exemption regime, it did announce that it would introduce a number of reforms to enhance the current regime and make it simpler to apply. These include removing the need for the investing company to be trading at all, removing the need for the investee company to be trading immediately after acquisition, and extending the time allowed for piecemeal disposals of substantial shareholdings. In addition, the Government announced that it would introduce a new and wider exemption for the direct or indirect holdings of qualifying institutional investors to apply to investments exceeding £50m even where the normal 10% shareholding condition was not met.

For details of the draft legislation released in December 2016, see Reform of the UK’s substantial shareholdings exemption.

Finance Bill provisions

The provisions implementing the new exemption where qualifying institutional investors (QII) collectively hold at least a 25% interest in an investing company have been amended in two significant ways. 

Firstly, the necessary acquisition cost of the relevant holding in shares to qualify for the extended definition of "substantial shareholding" which applies for the new exemption has been reduced to from £50m to £20m.

Secondly, the new exemption will not now be available where the investing company is listed on a recognised stock exchange unless it is itself a QII or a UK REIT (UK real estate investment trust). 

In addition, the provisions dealing with when a person “indirectly” owns share capital of an investing company have been extended to ensure that they cover the situation where the holding is through a partnership.

Comment

Clearly some of the changes introduced will restrict the new exemption whilst others will extend its scope. However, it remains the case that the scope of the SSE will be significantly broadened from 01 April 2017 when the new rules are intended to take effect.