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

HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
, see all updates

Qualifying corporate bonds: share reorganisations: definitions

Before TCGA 1992 section 116 can apply, it is necessary that:

  • sections 127 -130 would otherwise apply by virtue of any provision within Chapter II, Part IV TCGA 1992, (section 116(1)(a)), and
  • either the original shares would consist of or include a qualifying corporate bond (QCB) and the new holding would not, section 116(1)(b), or,
  • the original shares would not consist of or include a QCB and the new holding would, section 116(1)(b).

Both ‘original shares’ and ‘new holding’ have the same meaning as that provided for in sections 127-130, see CG45666. However sections 116(3) and 116(4) provide that for the purposes of section 116 instead of using the terms ‘original shares’ and ‘new holding’, different terminology is to be used.

Section 116(3) provides that where a QCB would constitute the original shares for the purposes section 127-130 then for the purposes of section 116 the QCB is referred to as ‘the old asset’. The shares or securities which would constitute the new holding are then referred to as ‘the new asset’.

Under section 116(4) where a QCB would constitute the new holding for the purposes of sections 127-130 then for the purposes of section 116 the QCB is referred to as ‘the new asset’ and the shares or securities that would constitute the original shares are in this situation referred to as ‘the old asset’.

Examples:

  1. Jim held 100 shares and a QCB issued by Plough Horse Ltd and exchanged these for shares in Tractor plc. The exchange met the conditions in section 135 consequently section 127 applied.
Jim’s shares and QCB in Plough Horse Ltd come within the meaning of original shares for the purposes section 127. Therefore for the purposes of section 116 the QCB is referred to as the old asset and the shares acquired in Tractor plc in exchange for the QCB as the new asset.
  1. Rob held 100 shares in Copernicus Ltd. and exchanged these for shares and QCBs in Ptolemy plc. The exchange met the conditions in section 135 consequently section 127 applied.
Rob’s QCBs in Ptolemy plc would come within the meaning of new holding for the purposes of section 127. Therefore for the purposes of section 116 the QCBs are referred to as the new asset and the shares in Copernicus Ltd as the old asset.

For transactions where sections 127-130 would apply subsection (2) uses a generic term ‘relevant transaction’.

Subsection (2) also ensures that references to a transaction include a conversion of securities within section 132 even where the conversion is not effected by a transaction.