Section 87 | Restriction on application of sections 85 and 86.

(1)Subject to subsection (2) below, and section 88 below, neither section 85 nor section 86 above shall apply to any issue by a company of shares in or debentures of that company in exchange for or in respect of shares in or debentures of another company unless the exchange, reconstruction or amalgamation in question is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax.

(2)Subsection (1) above shall not affect the operation of section 85 or 86 in any case where the person to whom the shares or debentures are issued does not hold more than 5 per cent. of, or of any class of, the shares in or debentures of the second company mentioned in subsection (1) above.

(3)For the purposes of subsection (2) above shares or debentures held by persons connected with the person there mentioned shall be treated as held by him.

(4)If any tax assessed on a person (the chargeable person) by virtue of subsection (1) above is not paid within six months from the date when it is payable, any other person who—

(a)holds all or any part of the shares or debentures that were issued to the chargeable person, and

(b)has acquired them without there having been, since their acquisition by the chargeable person, any disposal of them not falling within section 44(1) above or section 273 of the Taxes Act 1970 (disposals between spouses or members of a group of companies),^F1

may, at any time within two years from the time when the tax became payable, be assessed and charged (in the name of the chargeable person) to all or, as the case may be, a corresponding part of the unpaid tax; and a person paying any amount of tax under this subsection shall be entitled to recover a sum of that amount from the chargeable person.

(5)In this section references to shares or debentures include references to any interest or options to which this Chapter applies by virtue of section 86(3) above (interests in a company with no share capital) or section 139 below (quoted options).