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HMRC internal manual

Capital Gains Manual

Effect of TCGA92/S127: general

The effect of treating a change in a company’s share capital as a share reorganisation is dealt with in TCGA92/S127. This section imposes what has been described as two statutory fictions

  • the no disposal fiction


  • the single continuous asset fiction.

These fictions have their origin in the policy behind the share reorganisation rules. The policy is to make the tax treatment follow the commercial reality if there has been no fundamental change in the ownership of the company. The taxpayer is treated as not having disposed of the original shares. Instead the original shares and the new holding are treated as the same asset. All the shares in the new holding are treated as acquired at the same time, and for the same amount, as the original shares.

TCGA92/SCH7AC exempts gains on disposals by companies of substantial shareholdings, if certain conditions are satisfied (CG53000+). The no disposal fiction of section 127 is disapplied by Schedule 7AC if, on a reorganisation, section 127 would prevent the accrual of a gain or loss which would fall within the exemption in Schedule 7AC. The effect is that, in such a case, the shareholding company disposes of the original shares (but any gain is exempt and any loss is not allowable), and the new holding is acquired at market value.