Commentary

C3.1308 Business asset disposal relief—company reorganisations

Capital gains tax
Capital gains tax | Commentary

C3.1308 Business asset disposal relief—company reorganisations

Capital gains tax | Commentary

C3.1308 Business asset disposal relief—company reorganisations

The interaction between business asset disposal relief (previously known as entrepreneurs' relief before April 2020) and exchanges of shares and securities is far from straightforward. There are two main reasons for this. The first is that the rules governing exchanges of securities work differently depending on whether or not the security is a qualifying corporate bond. The second is the result of the 2010 changes in the method of calculation of the relief. As a consequence of this there are a number of different possible methods of applying and calculating business asset disposal relief associated with share exchanges, depending both on the date of the original exchange and on the date of the final disposal.

In a straightforward share for share exchange (including an exchange for non-QCB securities, which will almost always be in the form of loan notes) the new shares stand in the place of the old shares for capital gains tax purposes1. No gain arises at the point of exchange. Instead the base cost of the old shares is rolled over into the base cost of the new shares and a gain arises when the new shares are disposed of (see D6.205). This creates a problem for business asset disposal relief because, in many cases, the shares or securities acquired on the exchange will not meet the qualifying conditions for relief, typically because the new shares will not give the holder 5% of the voting power so it will no longer be

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