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HMRC internal manual

Capital Gains Manual

Definitions: issue of shares: subscription and purchase

In commercial terms there is a very important distinction between a subscription for shares and a purchase of shares. A subscription involves the issue of new shares by the company. The proceeds of the subscription go to the company. A purchase involves the acquisition of shares that have already been issued. The proceeds of the sale belong to the seller of the shares.

For example, in a privatisation the shares in the relevant concern, say British Gas PLC, are in the first instance issued to the Government which then sells them on to members of the public. The consideration paid by the public goes to the Government not to British Gas PLC. The company receives only whatever the Government subscribes for the shares when they are issued to it. By contrast, when a company raises capital for itself investors give money (new consideration) directly to the company or to its agent; in return the company issues new shares to the investors. At other times a would-be investor can acquire shares only by buying previously-issued shares from an existing shareholder, in which case the company will not usually receive anything.

The distinction between purchase of existing shares and subscription for an issue of new shares can be important for Capital Gains Tax purposes. For example,

  • the separate share pooling rules for `clogged’ shares only apply if the shares are issued to the employee, see CG50750
  • relief for losses on the disposal of shares in an unquoted company is available only if the taxpayer has subscribed for the shares, see VCM45200.