CG17921c - Taper relief: anti-avoidance rules - periods of inactivity - company reconstructions and reorganisations

A person eligible for taper relief may exchange shares or debentures for other shares or debentures when a company is reorganised, reconstructed or amalgamated. Where the relevant conditions are met, see CG51700+, TCGA92/S127 applies and the reorganisation is treated as not involving any disposal of the original shares or any acquisition of a new holding. The original shares and the new holding are treated as the same asset acquired as the original shares were acquired. Where, as a result, there is but one asset - represented at certain points in time during the holding period by the original shares and at other points in time by the new holding of shares - the tests in TCGA92/SchA1/Para11A are applied, at any particular time during the holding period and the relevant period of ownership, by an examination of the status of the company in which the shares were then held.

Example

Ali holds shares in a close trading company A, which he acquired on 18 November 1999. On 7 July 2002 the trade of that company is transferred to a newly formed close company B. The shareholders of A receive shares in B in consideration for the transfer of the trade. Company A is then liquidated. This whole transaction is treated as a reorganisation of shares for capital gains tax purposes. There is no disposal of the A shares as a result of the reconstruction, and the shares in company B are treated as acquired when the A shares were acquired. Ali disposes of his B shares on 1 October 2007. B was a trading company throughout. The assessment for TCGA92/SchA1/Para11A is made in respect of the shares actually held at the time. So for the period 18 November 1999 to 6 July 2002, Ali looks at company A; for the period 7 July 2002 to 1 October 2007, Ali looks at company B. Whilst Ali held shares in company A it was close but active throughout. The same applies to the times he held shares in Company B. Therefore TCGA92/SchA1/Para11A will not apply. Ali's qualifying holding period and relevant period of ownership will be from 18 November 1999 to 1 October 2007.