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HMRC internal manual

Capital Gains Manual

Company reconstructions: shareholder: TCGA92/S136: company office

In this guidance company office means the office to whom the clearance notification is sent. The company is not directly affected by the possible application of TCGA92/S136 but the company office has an important role to play. This is because the company file may be the only source of information on whether the technical and anti-avoidance conditions of Section 136 have been met.

For these reasons the company office is responsible for advising the shareholder office whether or not TCGA92/S136 applies. However, Capital Gains Technical Group will take the lead in dealing with the technical requirements and in applying the anti-avoidance provisions (other than considering requests for statutory clearance).

The procedure is summarised in the flowchart (Word 32KB) and below.

Dealing with TCGA92/S136 - company office

Shareholder office makes request under CG52760


All shareholder offices are required to ask the company office whether Section 136 applies. This includes offices dealing with shareholders who own 5 per cent or less of the issued shares and debentures. (Note that where the company holds any of its own shares in treasury these shares are ignored when this percentage is calculated because FA03/S195 (4)(b) provides for such shares to be treated as cancelled for most tax purposes while they are held by the company.) This is because the request covers both the technical and anti-avoidance aspects of Section 136.


This covers the technical requirements of Section 136. The main technical requirement is that the issue of shares or debentures is part of or concerned in a scheme of reconstruction. The requirements are outlined in Sch 5AA (see CG 52707). To ensure consistency of treatment in what can be a difficult area the clearance team in Counter-Avoidance Directorate consider whether a proposed transaction is a scheme of reconstruction when dealing with clearance applications. If there is any doubt the covering letter advising you clearance has been given or refused will ask for a report before you accept Section 136 applies. The clearance procedure itself and the notification to the applicant are concerned only with the anti-avoidance provisions.


The anti-avoidance provisions only apply to taxpayers that alone or with connected persons own more than 5 per cent of the issued shares or debentures of the company. Taxpayers who control smaller shareholdings are concerned only with whether the transactions meet the technical requirements of Section 136. 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.

It is the shareholder office’s responsibility to tell you whether the taxpayer falls into this category. If they do not you should assume the taxpayer has a larger shareholding.


If clearance has been refused you should send the shareholder office a copy of the refusal.


It is your responsibility to check the transactions have been carried out in accordance with the details in the notification of clearance. If you cannot satisfy yourself that they have then the case should be referred to Capital Gains Technical Group.


The covering letter sent with the copy of the clearance letter will ask for a report if certain events happen after the reconstruction. You should also send a report if you have any reason to doubt, from the information available to you, that the clearance application gave the full facts.