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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Groups: indexation allowance restriction: share reorganisations

The reverse situation might apply. Suppose a company acquires a holding of ordinary shares in a linked company in circumstances in which the conditions for the restriction of indexation allowance are not satisfied, and exchanges the shares for a debt on a security or for redeemable preference shares. When the company disposes of the debt or the redeemable preference shares, no indexation at all will be available because the test applicable to the acquisition of the debt or redeemable preference shares (that the companies were linked) is satisfied. To prevent this result, TCGA92/S182 (3) and TCGA92/S183 (2) allow indexation to the extent that this is just and reasonable. It would generally be appropriate to allow indexation up to the date of the exchange, but not thereafter. This applies whether the reorganisation took place before, on or after 15 March 1988.