GIM5240 - Taxation of the investment return: investment gains: paper for paper exchange of assets

Investments of an insurance company held in such a way that a profit on sale is a trading receipt and those profits are brought into account only on a realisation basis may be disposed of in return for shares in another company. Where this happens, realisation of the investments will have normally taken place.

In computing the profits of the year in which the transaction takes place, the fair value of the shares received (whether immediately convertible into money or not) would, in the absence of legislation, fall to be regarded as the proceeds of realisation of the investments disposed of. (See Royal Insurance Company Limited v Stephen, 14TC22; Gold Coast Selection Trust Limited v Humphrey, 30TC209.)

On the other hand, the exercise of an option is not regarded by itself as giving rise to any profit at that point- see Varty v British South Africa Company, 42TC406.