VCM48350 - VC loss relief: special rules for share reorganisations: new consideration given for new shares: general

ICTA88/S575 (2)(b)

If the shareholders pay for the new shares they should be treated as having subscribed for those shares. So if the other conditions of ICTA88/S574 are satisfied relief can be given on a disposal of the new shares.

It is possible that the new shares qualify for relief but the original shares do not. For example, if a taxpayer takes up a rights issue on shares originally acquired by purchase or gift, the new shares will qualify but the original shares will not. In these cases relief under ICTA88/S574 must be restricted to the amount paid for the new shares, ICTA88/S575 (2).

The restriction required by ICTA88/S575 (2) is very similar to the restriction in ICTA88/S576 (1) when a share pool includes qualifying and non-qualifying shares, see VCM47150. The effect of the share reorganisation provisions is to merge the amount paid for the new shares with the cost of the old shares, see CG51820. This is exactly the same problem you get with share pools. An added complication is that the old and new shares are treated as the same asset acquired at the same time as the old shares. Therefore you have qualifying and non-qualifying shares acquired on the same day. You deal with this in the same way as the same day acquisitions in a share pool, see VCM47400.