VCM39300 - EIS: deferral relief: shares issued on or after 6 April 1998: share exchanges: example

TCGA92/SCH5B/PARA8, TCGA92/S150A (8D), ICTA88/S304A & ITA/S145

An investor holds 100,000 £1 ordinary shares in X Ltd, an EIS company, that is, a company which has issued one or more EIS3 certificates. The shares cost £100,000 and he or she has, in respect of those shares, received £20,000 income tax relief and £100,000 deferral relief relating to a gain from the disposal of another asset.

On 1 December 1998 Y Ltd, previously having only 2 subscriber shares, issues new £1 ordinary shares in exchange for all the shares in X Ltd. HMRC has given advance notification that they are satisfied that the exchange will take place for bona fide commercial reasons and will not form part of a scheme or arrangements to which TCGA92/S137 (1) would apply (as there is income tax relief).

The investor is not treated as disposing of the shares in X Ltd. The issue of shares in Y Ltd to the investor is deemed to have taken place on the same date and for the same price as the shares in X Ltd for which they were exchanged were issued. (If the investor acquired the shares in X Ltd on a disposal within marriage, his or her acquisition of the shares in Y Ltd is deemed to be on the same date and for the same price as the shares in X Ltd were issued.)

The income tax and deferral reliefs are attributed to the shares in Y Ltd and are deemed to have been claimed on those shares. Any disposal relief that would have been available on the disposal of the shares in X Ltd will become available on the subsequent disposal of the shares in Y Ltd. In addition, the information requirements on X Ltd pass to Y Ltd, see VCM40900.

Company reconstruction and amalgamation

Although this guidance refers specifically to share exchanges, the same principles apply to company reconstruction and amalgamation within TCGA92/S136 where appropriate. For general guidance on share exchanges and company reconstruction and amalgamation see CG52500 onwards.