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HMRC internal manual

Capital Gains Manual

Group share exchanges: reversal of Woolcombers decision

TCGA92/S171 (3)The effect of the Woolcombers decision was reversed by FA88/S115, which introduced the exception to the no gain/no loss rule now in TCGA92/S171 (3). For share exchanges on or after 15 March 1988, the no gain/no loss rule does not apply to a transaction treated by the share reorganisation provisions as not involving a disposal by the transferor company.

EXAMPLE

  A   A  
         
  :   :  
  : Cost £0.08M : Cost £0.08M
  : Market value £1.2M : Market value £1.2M
  :   :  
  B   C  
      :  
      : Cost £1.2M
      : Market value £1.2M
      :  
      B  

On a share exchange on or after 15 March 1988 company A transfers to group company C shares in group company B with original cost £0.8M and market value £1.2M. The effect of roll-over treatment under the share reorganisation provisions is that the capital gains cost of A’s shares in B becomes (part of) the capital gains cost of A’s shares in C. It is assumed that before the share exchange company C is a shell subsidiary with negligible assets. C’s acquisition from A of the shares in B is a transaction to which the market value rule in TCGA92/S17 (1) applies, so C acquires the shares in B at their market value at the time of the share exchange £1.2M. For share exchanges on or after 15 March 1988 the no gain/no loss rule in TCGA92/S171 (1) does not apply to C’s acquisition from A of the shares in B.