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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Group share exchanges: introduction

If group company A owns group company B, the group can interpose a third company C between A and B by means of a share exchange.

EXAMPLEA transfers its shares in B to C for consideration satisfied by an issue of shares by C to A.

  Stage 1 Stage 2
     
  A A
  : :
  : :
  : :
  : :
  B C
    :
    :
    :
    :
    B

A share exchange is not the only way in which the group can interpose another company between A and B. Company A could transfer B to company A’s directly held subsidiary C for cash consideration (which may or may not equal market value) and this restructuring would not involve an exchange of shares. The share exchange case raises particular problems because of the interaction between the no disposal rule for share reorganisations in TCGA92/S127 and the no gain/no loss rule for intra-group asset transfers in TCGA92/S171 (1).