VCM20550 - EIS: general: company invested in: exchange for shares in new holding company

ICTA/S304A; ITA/S247 – 249; TCGA92/S150A (8D); TCGA92/SCH5B/PARA8

Normally an exchange of shares for other shares counts as a disposal. In certain circumstances, however, the new shares are effectively treated as being a continuation of the old holding. Thus the new shares are treated as having been issued when the old shares were issued, the original qualification periods continue to run, and the relief attributable to the old shares is attributed to the new shares.

The circumstances in which this treatment is given are where:

• at the time of the exchange, some relief is attributable to the old shares,
• the new shares are shares in a company in which the only issued shares, immediately before the exchange, are the original subscriber shares,
• HMRC confirmed in advance of the exchange that they were satisfied that it would be effected for bona fide commercial reasons and would not form part of a scheme or arrangement to which TCGA92/S137 (1) would apply - in other words, HMRC gave a clearance under TCGA92/S138 (1) - see CG52632,
• the consideration received in exchange for the old shares consists wholly of the new shares.

These rules are implemented separately for income tax relief and deferral relief, and the income tax relief provision is applied for the purposes of the CGT disposal relief.

For guidance as regards the consequences of other types of share exchanges, see the following: