IFM16320 - Exchange of shares for those in another investment fund

Section 135 Taxation of Chargeable Gains Act 1992

This section applies in three cases where investment fund ‘B’ issues shares or debentures in exchange for shares or debentures in investment fund ‘A’.

Case 1

  • Where ‘B’ holds or in consequence of the exchange will hold, more than 25% of the ordinary share capital of ‘A’.

Case 2

  • Where ‘B’ issues the shares or debentures in exchange for shares as a result of a general offer:
    • made to members of ‘A’ or any class of them (with or without exceptions for persons connected with ‘B’), and
    • made in the first instance on a condition such that if it were satisfied ‘B’ would have control of ‘A’.

Case 3

  • Where ‘B’ holds, or in consequence of the exchange will hold, the greater part of the voting power in ‘A’.

If any of these cases apply, chargeable gains rules apply as if CIS ‘A’ and CIS ‘B’ were the same company - see CG51700C. In summary, the exchange of shares in ‘B’ for shares in ‘A’ is treated as not a disposal for chargeable gains purposes and the ‘B’ shares are treated as having been acquired at the same time as the original ‘A’ shares.

Section 135 only applies where the arrangements take place for bona fide commercial reasons and not for the avoidance of tax – see IFM16350.