Share for share exchanges and schemes of reconstruction—anti-avoidance rules
Share for share exchanges and schemes of reconstruction—anti-avoidance rules

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Share for share exchanges and schemes of reconstruction—anti-avoidance rules
  • The shareholder—purpose test
  • Issue of loan notes
  • The shareholder—minority holdings
  • The shareholder—assessment of tax
  • Secondary liability
  • The shareholder—clearance in advance
  • The company—purpose test
  • The company—assessment to tax
  • Secondary liability
  • More...

Share for share exchanges and schemes of reconstruction—anti-avoidance rules

This Practice Note is about the tax anti-avoidance rules that apply to a share for share (or share for loan note) exchange or a scheme of reconstruction.

Relief from tax on chargeable gains is available for both:

  1. the shareholders of a company (company A) who either:

    1. exchange their shares in company A in consideration for the issue of new shares (or loan notes) by another company (company B) (ie company B acquires the shares in company A), or

    2. receive shares in company B pursuant to a scheme of reconstruction, and

  2. the reconstructed company (ie company A) which enters into a scheme of reconstruction involving the transfer of its business to company B

The general principle underlying the tax neutrality of these transactions is that the ultimate owners (ie shareholders) of a business retain an interest in that business after the transaction has taken place. On the broad basis that there has been no change in the economic interests of those affected by the share exchange or reconstruction and that no value has been extracted from the underlying business as a result, it is inappropriate to tax the transaction.

As a result, both types of transaction potentially qualify for tax relief as if they were the reorganisation of a single company's share capital.

The tax reliefs are potentially very valuable

Related documents:

Popular documents