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CG52670 | Share exchange: TCGA92/S135: anti-avoidance provisions apply

From HM Revenue & Customs · Capital Gains Manual

If TCGA92/S135 is prevented from applying by TCGA92/S137 the exchange will be treated as a disposal. The disposal proceeds will be either

  • the value in money’s worth of the shares or debentures issued by the acquiring company, if the transaction is a bargain made at arm’s length, or

  • the market value of the shares or debentures sold, if the transaction is not a bargain made at arm’s length.

If clearance has been refused you should tell the taxpayer you intend to treat the exchange as a disposal. If there is any objection or appeal against an assessment on the basis that TCGA92/S135 should apply a full submission should be made to Capital Gains Technical Group along with any relevant accompanying documents. In cases in which there was no clearance application the Capital Gains Technical Group will advise you on whether to make the assessment

Recovery of unpaid tax

There are special provisions for recovering unpaid tax if the exchange is treated as a disposal and the new shares and debentures have been transferred to a spouse or civil partner of the transferee or to a member of the same group of companies.

TCGA92/S137 (4) provides

  • if tax is charged because TCGA92/S137 (1) has prevented TCGA92/S135 from applying and

  • the tax has not been paid within six months from the date it should have been paid and

  • all or part of the new shares or debentures have been transferred at no gain/no loss to a spouse or civil partner of the original shareholder or to a member of the same group of companies then

  • the unpaid tax may be assessed on the transferee.

Assessment

The assessment has to be made within two years of the date the tax became payable. Any case to which TCGA92/S137 (4) may apply should be referred to Capital Gains Technical Group who will advise on the form of the assessment.

TCGA92/S137 (4) is modified for chargeable gains which accrue in chargeable periods ending after 30 September 1993. The reference to the date the tax becomes payable is changed to the later of

  • the date the tax becomes due and payable by the chargeable person or

  • the date the assessment was made on the chargeable person.