The Upper Tribunal’s recent decision in M Group Holdings Limited v HMRC [2023] UKUT 00213 (TCC), concerning the availability of the substantial shareholding exemption (“SSE”), serves as a useful reminder to heed any applicable “bright line” requirements when planning to avail of tax exemptions and reliefs.


M Group Holdings Limited (“MGH”) had historically traded as a stand-alone company, providing services under NHS contracts to hospitals and clinics. To facilitate the sale of the business, MGH incorporated a wholly-owned subsidiary on 29 June 2015, Medinet Clinical Services Limited (“MCS”), to which it subsequently “hived down” its trade and assets on 30 September 2015. MCS was then sold to a third party purchaser on 27 May 2016, just under 11 months after MCS was incorporated (the “Disposal”).  

The issue under consideration by the Upper Tribunal was whether MGH could rely on the SSE to eliminate the charge to corporation tax (of approximately £10.6m) otherwise arising on the Disposal. The stumbling block pertained to the basic SSE requirement that the investing company (here, MGH) must have a substantial shareholding in the investee company (here, MCS) for a continuous 12-month period during the (at that time) two-year period prior to the relevant disposal. MGH could not satisfy this requirement because MCS had been incorporated only 11 months prior to the Disposal. However, paragraph 15A of Schedule 7AC to the Taxation of Chargeable Gains Act 1992 extends the SSE to situations where the trading assets of the investing company or another member of the group have been transferred to the investee company. The provision deems the investing company, in such situations, to have held its substantial shareholding in the investee company for the period where such transferred assets were used in the trade of that other group member.  As MGH had itself held the trading assets prior to transferring them to MCS, it sought to rely on this extension to claim that the 12-month holding period had been met.

Although there had clearly been a transfer of trading assets from MGH to MCS, the dispute centred around the requirement in paragraph 15A “that the asset was previously used by a member of the group (other than the company invested in) for the purposes of a trade carried on by that member at a time when it was such a member”  (emphasis added). The problem MGH faced was that, before 29 June 2015, MGH was carrying on the trade, and using the relevant assets, as a stand-alone company. The First-tier Tribunal (“FTT”) had previously found that the SSE was unavailable, as the temporal element of the deeming provision had not been satisfied. On appeal to the Upper Tribunal, MGH challenged the FTT’s interpretation of the temporal element – based on the construction of the legislation, and taking a purposive approach.  MGH also proposed a novel argument that, even if MGH had been a stand-alone company prior to MCS’ incorporation, it was nevertheless still a “group” – albeit a group of one – and, more specifically, part of the same group that MCS subsequently joined upon incorporation.


The Upper Tribunal held that, despite the “valiant attempt” to argue the point, a stand-alone company would not, as a matter of the ordinary and natural meaning of the term, constitute a “group”. Additionally, the Upper Tribunal agreed with the FTT that the temporal element was a crucial requirement for the deeming provision, so that the deemed period of MGH’s substantial shareholding in MCS could only extend over the period where the transferred assets had been held and used by MGH when it formed part of a group with MCS (i.e., upon and after, but not prior to, the incorporation of MCS). Unlike the FTT, the Upper Tribunal had no problem identifying a clear purpose for the deeming provision, which was discernible from the wording of the legislation itself: namely, to extend the availability of the SSE to specific transactions within a group of companies. Applying these conclusions to the facts at hand, the SSE was therefore not available to MGH in the circumstances.

Two interesting practical points arise from the decision:

  • Dormant versus new subsidiaries: Had MCS been incorporated more than a month earlier, then (all other facts remaining the same) the temporal aspect of the deeming provision would not have been an issue. MGH and MCS would, in this circumstance, have been part of the “same group” for the requisite period, even if MCS had been nothing more than a non-trading “shell” during the period prior to the asset transfer. The legislation therefore seems to produce the curious result for standalone companies that the availability of the SSE in “hive down” situations turns on whether the relevant subsidiary is newly formed or not. Of course, in many cases, the selling company will already be part of a wider group (rather than held by individuals), in which case a hive down of trading assets to a newly incorporated subsidiary would not present the same problem.
  • Significance of “bright line” requirements, especially timing: The timing of the Disposal had significant consequences for MGH. Had MGH sold its shares in MCS just a little over one month later, it would have clearly qualified for the SSE, without the ensuing hassle (not to mention additional cost) of litigation. The Upper Tribunal observed in its judgment that “bright lines are a common feature of tax legislation particularly in respect of time limits”, and took this observation so far as to say that if the SSE were to be disallowed in a case where shares were sold just one day too early, this still would not produce an unjust result given the express timing requirement. The decision therefore highlights the importance of adhering to “bright line” requirements for exemptions and reliefs such as the SSE, and the potential risks of straying even just a little bit outside those lines.

Please speak to your usual Weil London Tax contact if you would like to discuss this case, or the SSE, in greater detail.