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HMRC internal manual

Capital Gains Manual

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Reorganisations of share capital: definition: reorganisation

TCGA92/S126(1) defines a share reorganisation for the purposes of TCGA92/S127 to TCGA92/S131 as a reorganisation or reduction of a company’s share capital. This definition includes the words it is seeking to define. There is further guidance on the meaning of reorganisation in TCGA92/S126(2) which provides

The reference in subsection (1) above to the reorganisation of a company’s share capital includes -

  1. any case where persons are, whether for payment or not, allotted shares in or debentures of the company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of shares in the company or of any class of shares in the company, and
  2. any case where there are more than one class of share and the rights attached to shares of any class are altered’.

The use of the word ‘includes’ means that the cases described in (a) and (b) do not amount to an exhaustive definition of what constitutes a reorganisation of share capital. However, they do indicate the characteristics which a reorganisation must have, and case law (see CG51748) sheds light on what sorts of transactions have those characteristics.

The words ‘or as nearly as may be in proportion to’ cover the situation where it may be arithmetically impossible to issue new shares exactly in proportion to a shareholding. For example, if a company made a bonus issue of one new share for every two shares held it could not make an exactly proportionate is-sue to any holder of an odd number of shares.