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HMRC internal manual

Capital Gains Manual

Share reorganisations: definitions: original shares

When considering reorganisations of share capital there are certain statutory terms which it is important to understand.

Original shares

TCGA92/S126(1)(a) defines ‘original shares’ as the shares held before, and concerned in, the reorganisation. These are the shares which give the taxpayer the right to receive the bonus issue or take up the rights issue etc. For shares to be treated as concerned in the reorganisation there must be a direct linkage between the shares and the reorganisation. For example, a company may have ordinary shares and preference shares but only make a rights issue in respect of the ordinary shares: although the value of the preference shares may be affected by the reorganisation only the ordinary shares are ‘concerned in’ the reorganisation. You are most likely to meet this type of argument when dealing with the apportionment of costs.

New Holding

TCGA92/S126(1)(b) defines ‘new holding’ by reference to the original shares (see above) as the shares in and debentures of the company which, as a result of the reorganisation, represent the original shares (including such, if any, of the original shares as remain). Note that a reorganisation of share capital can involve an issue of debentures as well as or instead of an issue of shares. In a bonus or rights issue the new holding will include the original shares as well as the newly issued shares. If one class of shares has been replaced by one or more other classes of share, the new holding will comprise the new shares only.

You should bear in mind that the phrase ‘new holding’ in TCGA92/S126(1)(b) is used only to identify the entirety of the assets representing the original shares. It is not a pooled asset as such. Until 1998 the TCGA also used the term ‘new holding’ to refer to what is now known as a ‘Section 104 holding’, that is to say a pool of shares of the same type acquired after 5 April 1982 (31 March for companies). When the identification rules for share disposals were revised in FA 1998, the ‘new holding’ share pool was renamed ‘Section 104 holding’. In this part of the guidance, ‘new holding’ refers to a new holding as defined in TCGA92/S126(1)(b). ‘Section 104 holding’ refers to a pool of shares.