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HMRC internal manual

Capital Gains Manual

Share exchange: TCGA92/S135: qualifying corporate bonds

When dealing with a share exchange which involves the issue of a debenture you should always be aware of the possibility that the debenture may be a qualifying corporate bond, QCB. In general terms any non-convertible debenture denominated in sterling and issued on normal commercial terms will usually be a QCB. For full instructions on the definition of QCB, see CG53700+.

TCGA92/S135 does not apply to the issue of QCBs in exchange for shares or debentures that are not QCBs. Instead TCGA92/S116 requires that you compute the gain or loss that would have arisen if the original shares and debentures had been sold at their market value. This gain or loss is then released on a later disposal of the QCBs.

Full guidance can be found at CG53709+.

You may meet cases where a debt which was issued on a share exchange has been disposed of, and it is suggested that a capital gains charge on the disposal has been reduced or eliminated because of a change in the tax status of the debt prior to its redemption or other disposal. It may for example be claimed that a debt was not a QCB at the time of the share exchange, so that TCGA92/S135 can apply, but that (as a result of the claimed change in the status of the debt) the debt is a QCB by the time of disposal.

New rules were introduced in Finance Act 1997 to ensure that in such cases any gains on the earlier shares, and where appropriate on the debt itself up to the time of the change in status, remain within the capital gains charge. See CG55018+.