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HMRC internal manual

Capital Gains Manual

Contingent liabilities: warranties/representations: qualifying corporate bonds

The consideration for the take-over may be debentures which are Qualifying Corporate Bonds (QCBs). Detailed guidance on this type of transaction can be found at CG53711. TCGA92/S116 prevents TCGA92/S135 or TCGA92/S136 applying. Instead you compute the gain that would have arisen if the old shares were sold at their market value immediately before the take-over. This computation should take account of any warranty allowable under TCGA92/S49 (1)(c). It may be necessary to use Section 49(2) to give relief if some or all of the debentures have been disposed of before the warranty is paid.

It is quite common for the consideration given on a take-over to include a combination of cash, shares and debentures which may or may not be QCBs. Any warranty payments allowable under TCGA92/S49 (1)(c) should be allocated to the cash and QCB element before any relief is given under ESC/D52. The receipt of the cash and/or QCBs represents a disposal or an event which under TCGA92/S116 (10)(a) is treated as though it was a disposal. Section 49 relief must be given against these disposals before it can be extended by concession.