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HMRC internal manual

Capital Gains Manual

Share reorganisations: consideration paid: provided by shareholder

The purpose of the second condition is to make sure that the consideration has to be provided by the shareholder and not the company. Consideration provided by the shareholder may not increase the company’s net worth, the cash may be used to pay off creditors, but it will increase the company’s resources. If the consideration is provided by the company any increase in the taxpayer’s tax base cost will be artificial because there will be no corresponding increase in the company’s resources.