Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
, see all updates

Reorganisations of share capital: open offers and vendor placings: considerations

Whether an issue of new shares is made under a reorganisation of share capital or not is likely to be material only when the original or new shares are disposed of and it is necessary to determine the allowable cost of what is disposed of. And it may not make any practical difference even then. Any difference in the gain or loss is likely to arise because of the different operation of the pooling and share identification rules in the two cases: because those rules have changed from time to time the existence and amount of any difference will in turn depend on when the disposal takes place which occasions their use. The identification rules also differ according to whether the person making the disposal is liable to Capital Gains Tax or Corporation Tax.

Remember that if and to the extent that the issue forms part of a reorganisation of share capital there is deemed to be no disposal of the original shares and no acquisition of the new holding by the shareholder; otherwise there is an acquisition of the new shares.

Disposals on or after 6 April 2008, gains charged to Capital Gains Tax

Finance Act 2008 reintroduced share pooling for the purposes of disposals on or after 6 April 2008. All shares of the same class held immediately before the disposal are included in a section 104 holding for identification purposes and their allowable costs are pooled, so it is unlikely to make any practical difference whether new shares included in the holding arose from a reorganisation (and thus fall to be identified with the original shares in the holding) or were acquired as a separate asset. See CG51550+.

Disposals between 6 April 1998 and 5 April 2008, gains charged to Capital Gains Tax

For disposals in this period, different share identification rules applied so that shares of the same class would fall into one or more of a number of groups or pools. If newly-issued shares were treated not as assets acquired in their own right, but rather as the same asset as the shares in respect of which they were issued (that is to say, if there was a reorganisation of share capital) then the new shares and their cost augment the original shares and the original shares’ cost in the original shares’ pools, see CG51575. If the newly-issued shares were treated as acquired in their own right (ie not under a reorganisation) then they will constitute a separate asset following the ending of pooling in FA 1998.

The difference in treatment has other practical implications; such as for determining the length of the qualifying holding period of the shares for the purposes of taper relief (if the shares are disposed of on or before 5 April 2008). For guidance on taper relief, see CG17895+.

Disposals giving rise to gains chargeable to Corporation Tax

The share identification rules relating to Corporation Tax did not change significantly either in 1998 or 2008, so the relevance of whether new shares were acquired under a reorganisation of share capital or not will depend less on the date of the subsequent disposal.

Indexation allowance remains available for taxpayers within the charge to Corporation Tax. Note, how-ever, that even if new shares included in a section 104 holding are treated as the same asset as the original shares (ie if they were issued in a reorganisation of share capital) any indexation allowance is computed from the time their cost was incurred, TCGA92/S131, and not from when the asset is deemed to have been acquired.

If the taxpayer has a 1982 holding, the reorganisation treatment requires the new shares which are issued in respect of the 1982 holding to be added to the 1982 holding and not the Section 104 holding, see CG51632. If the taxpayer has a 1982 holding and a Section 104 holding you should apportion the new shares between the two holdings.

If the question of whether or not shares were issued under a reorganisation of share capital is not material it is best you merely accept the computation without commenting on the possible application of the reorganisation rules. In this way there should be no consequential effects for HMRC Officers dealing with shareholders for whom the question is relevant.