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

HMRC internal manual

Capital Gains Manual

Share exchange: TCGA92/S135: qualifying conditions: general

The relevant conditions for TCGA92/S135 to apply are

  • Acquiring company B either holds, or as a consequence of the exchange will hold, more than one quarter of the ordinary share capital of target company A, see TCGA92/S135(1)(a) test below,


  • The shares or debentures are issued as a result of a general offer made to the members of company A, or to any class of them, in the first instance on a condition which if it is satisfied would give company B control of company A, see TCGA92/S135(1)(b) test below,


  • Company B holds, or as a consequence of the exchange will hold, the greater part of the voting power of company A, see TCGA92/S135(1)(c) test below.

If, on or after 1 December 2003, company A holds some of its own shares in treasury those shares don’t count as issued share capital when it comes to deciding whether the conditions are met (see CG50287).

TCGA92/S135 (1)(a) test

To satisfy the first test, company B must hold the shares directly. Therefore, an acquisition by a wholly owned subsidiary of company B in exchange for an issue of shares by company B would not satisfy the test. Ordinary share capital has the same meaning as in CTA2010/S1119 and ITA 2007 part 16, that is all the issued shares except those that have a right to a dividend at a fixed-rate but which have no other right to share in the profits of the company. It is extended by Section 135(4) to include rights of unit holders in unit trusts and interests in companies without issued share capital which are possessed by their members.

TCGA92/S135 (1)(b) test

The second test will only apply if a company declares unconditional a general offer which was originally conditional on sufficient acceptances being received to give it control of company A. For example, company B could write to all the shareholders in company A and offer to acquire their shares provided the offer is accepted by holders of 90 per cent of the issued share capital. Whilst the offer was still open company B could drop this condition. TCGA92/S135 would then apply to any shares in company A which were exchanged for shares in or debentures of company B even if the offer was unsuccessful.

(Control is defined at CTA 2010/S450)

TCGA92/S135 (1)(c)

The third test was introduced in 1992 to comply with EC law. It applies to exchanges made on or after 1 January 1992.