CG17914 - Taper relief: qualifying holding period: assets acquired in reconstruction

TCGA92/SCHA1/PARA18

TCGA92/SCHA1/PARA18 introduces special rules where a company, such as an insurance company (but not a building society), run on a mutual basis, de-mutualises. For example this will apply when a company with mutual status transfers its business to a company which issues shares to the members of the mutual company. In this situation members of the mutual body may be able to qualify for TCGA92/S127 treatment upon receiving the shares in the new company by virtue of TCGA92/S136(3) which extends the rules of TCGA92/S135 and TCGA92/S136 to any interests in a company in which no share capital is possessed by members of the company. The Capital Gains Tax treatment of this type of de-mutualisation depends on its precise terms.

Where it has been agreed that TCGA92/S136(3) applies, then the period of ownership for taper relief will start from the time the shares are issued on the de-mutualisation or 6 April 1998 if later, rather than at any earlier time.

For general guidance on TCGA92/S136 and the related anti-avoidance tests within TCGA92/S137, see CG52500+ and in particular CG52700+.

For the de-mutualisation of building societies, where specific provisions in TCGA92/S217 apply, see CG79005+.

Where TCGA92/S217 applies, no gain arises on the de-mutualisation and the qualifying holding period for taper relief will begin when the shares are issued or 6 April 1998 if later.

Where a building society demutualises and the successor company makes cash payments to the members of the society, the provisions of Section 217 do not apply and a gain may accrue to the member as a result of the cash payment. TCGA92/S214C prevents taper relief from applying to any such gain accruing to a member of a building society on its de-mutualisation.