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HMRC internal manual

Capital Gains Manual

Share exchange: TCGA92/S135: shareholder's office

The anti-avoidance provisions and the clearance procedure affect the way you should deal with computations prepared on the basis that TCGA92/S135 applies. The procedures depend upon whether the company being acquired was quoted or not.

Quoted companies

If the company being acquired was quoted you should follow the treatment in Extel. If Extel reports that clearance has been granted you can accept TCGA92/S135 applies. Extel does not confirm clearance has been given if the exchange only includes an issue of debentures which are qualifying corporate bonds (QCBs). However, you can still accept the treatment in Extel which gives details of how to compute the held over gain. For further instructions on share exchange involving QCBs, see CG53820+.

If the transaction is not mentioned in Extel you should follow the instructions for unquoted companies.

Unquoted companies

If the company being acquired is unquoted you must rely on the company office to advise you whether the technical and anti-avoidance provisions are satisfied. In this part of the manual “company office” means the HMRC office dealing with the CT affairs of a company. Except where otherwise specified this will be the company whose shares or debentures are being acquired. The anti-avoidance provisions will not be relevant in very small cases, see CG52620. Here, you can accept TCGA92/S135 applies without reference to the company office if it is obvious the technical conditions of Section 135 are satisfied.

The procedure

The procedure is summarised in the following questions

Q1) Does the taxpayer, alone or with connected persons, own more than 5% of, or of any class of, the issued shares or debentures of the company. (see Note 1).

  • If No - Section 135 applies if any of the technical conditions in Section 135(1) are satisfied. (see Note 2).

If Yes go to Q2

Q2) Does the case meet both the following conditions: -

  1. reorganisation treatment is not prevented by Section 137


  1. Section 135(1) applies?

(See note 3)

  • If No - Treat as disposal. (see Note 3).

If Yes go to Q3

Q3) Do debentures form part of the consideration?

  • If No - Section 135 applies.

If Yes go to Q4

Q4) Are they QCBs? (see Note 4).

  • If No - Section 135 applies.

Note 1

The anti-avoidance provisions will not apply if the shareholder either alone or with connected persons owns 5 per cent or less of, or of any class of, the issued shares or debentures of the company being acquired. If, on or after 1 December 2003, that company holds some of its shares in treasury these don’t count as issued share capital when it comes to the calculation see CG50287.

Note 2

The technical conditions are listed in TCGA92/S135 (2), see CG52523. You may have to approach the company office for this information. If the technical conditions are not satisfied TCGA92/S135 will not apply.

Note 3

You should obtain confirmation of these points from the company office. Ask the Clearance & Counteraction Team, Anti-Avoidance Group if you cannot trace the company office. If the company office advises that

  • reorganisation treatment is prevented by Section 137


  • none of the technical conditions in Section 135(1) is satisfied

you should treat the transaction as a disposal of the shares and debentures concerned, see CG52670.

Any appeal or objection to this treatment should be referred to Capital Gains Technical Group with your file and the file of the company being taken over.

If the company is not resident or the company office cannot be traced send a report with your file to Capital Gains Technical Group.

Note 4

See CG53702+ for a definition and CG53709+ for action.