HMRC internal manual

Capital Gains Manual

CG12440 - Location of assets: types of asset (2): shares and securities etc

Shares and securities (TCGA92/S275(1)(d), (da) and (e))

Shares or securities issued by any municipal or governmental authority or by any body created by such an authority are situated in the country of that authority. This applies to shares and securities issued by such bodies whether they are in registered form or in bearer form (see below).

Shares or securities of a company incorporated in any part of the United Kingdom are situated in the United Kingdom, TCGA92/s275(1)(da). This rule was introduced by Finance Act 2005 and has effect from 16 March 2005. Before that date, there was no special rule for companies incorporated in the United Kingdom: where such a company issued registered shares or debentures their location was determined by the general rule in the following paragraph. This left the location of a UK company’s unregistered, or ‘bearer’ shares to be determined on the principles of general law which meant it could change and be manipulated by moving the share etc into or out of the UK. From 16 March 2005 ‘bearer’ shares or securities issued by a UK company are necessarily located in the UK.

Registered shares and securities other than those dealt with in the previous two paragraphs are situated where they are registered. This will normally be in the country where the company was incorporated. If they are registered on more than one register then they are located where the principal register is located, TCGA92/S275(1)(e). Which register is the principal register is a question of fact.

The Companies Acts allow companies to issue ‘share warrants to bearer’ or ‘stock warrants to bearer’ provided the company’s Articles of Association allow it. These are commonly called bearer shares and securities. The name of the owner of such bearer securities is not recorded in the register of the company. They can be sold without any necessity to notify the company. The holder of the warrant is entitled to receive payment of dividends and, provided certain conditions are complied with, to vote at general meetings.

The location of bearer securities issued by any body other than

  • a municipal or governmental authority or
  • any body created by such an authority, or
  • a company incorporated in the UK

is not covered by a specific capital gains rule. Therefore it has to be decided in accordance with general law, see CG12420-CG12421. General law provides that such securities are located where the certificate is located. As for chattels, the location can change if the certificate is moved in or out of the UK.

Letters of allotment

Letters of allotment should be treated as located in the country where the company issuing the letters is registered. In the case of Young v Phillips 58 TC 232 bonus shares were issued in respect of registered shares located in the UK. The issue was made in letter of allotment form. The letters were then taken to the Channel Islands and disposed of there. It was held that the letters of allotment were located in the UK because they evidenced rights which were properly enforceable only in the UK.

Securities of International or European Organisations

Special rules are provided for dealing with securities issued by certain designated international organisations.

TCGA92/S265 allows the Treasury to designate for special treatment certain organisations whose membership includes the UK or any of the Communities of which the UK is a member. Once such an organisation has been designated any securities issued by it are deemed for the purposes of Capital Gains Tax to be located outside the UK. The list of organisations that have been designated under this provision is as follows.

  • International Bank for Reconstruction and Development
  • Asian Development Bank
  • African Development Bank
  • The European Economic Community
  • The European Investment Bank
  • The European Bank for Reconstruction and Development
  • The European Coal and Steel Community
  • The European Atomic Energy Community

Similarly, TCGA92/S266 provides that any security issued by the Inter-American Development Bank shall be treated as located outside the UK for Capital Gains purposes.