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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Qualifying corporate bonds: no gain/no loss transfers

Certain sections of the TCGA provide that for some disposals the consideration received by the vendor is fixed at a sum which will ensure that neither a gain nor a loss will accrue to the vendor. The assets transferred may include qualifying corporate bonds (QCBs). The disposal of the QCBs may trigger a deferred gain because of TCGA 1992 Section 116(10). Section 116(11) provides that for the following types of no gain no loss transfers that will not happen.

TCGA1992/S58(1) - husband and wife or civil partners of each other

TCGA1992/S62 (4) - disposals by personal representatives to legatees

TCGA1992/S139 - company reconstructions involving the transfer of a business

TCGA1992/S140A - transfer of a UK trade

TCGA 1992/S140E - merger leaving assets in the UK

TCGA 1992/S171(1) - disposals within a group of companies

Under section 116(11) where any disposal under the ‘no gain no loss’ sections mentioned above includes QCBs and the disposal of these would otherwise trigger a deferred gain under section 116(10)(b) then section 116(10)(b) will not apply at that time. Instead section 116(11) provides for a ‘stand in shoes’ rule whereby the acquirer of the QCBs to which the no gain no loss rule applies is treated as being the person to whom section 116(10) originally applied.

Example

On 1 January 2010 Tom exchanged his ordinary shares in company A for QCBs in company B. Section 116 applied and in accordance with subsection 10(a) the latent gain on the shares was computed. On 1 January 2011 Tom disposed of his QCBs to his wife, Una. Section 58 applied so that neither a gain nor a loss accrued to Tom. Under section 116(11) the deferred gain does not accrue at that time. For the purposes of sections 116(10)(b) & (c) Una is treated as having acquired the QCBs, the new asset, for the same consideration and at the same time the QCBs were acquired by Tom. When Una disposes of the QCBs then the deferred gain under section 116(10)(b) will be chargeable on Una.