CG55045 - Conversion of securities: compensation stock
TCGA92/S134
A nationalisation scheme usually involves the compulsory acquisition of shares and securities in the company to be nationalised in exchange for an issue of government stock (gilt-edged securities or gilts). TCGA92/S132 (3)(a)(iii) provides that an issue of securities in exchange for shares or securities as part of a compulsory acquisition should be treated as a conversion of securities. Therefore, the issue of securities for shares would not be a disposal. Gilts are exempt from Capital Gains Tax, see CG54900. If gilts are issued in exchange for shares on a nationalisation any gain on the shares up to the date of nationalisation would escape any charge to Capital Gains Tax. There would be no charge at the date of the exchange and no charge when the gilts were disposed of.
This problem is very similar to that when qualifying corporate bonds (QCBs) are issued in exchange for shares. An exempt asset is issued in exchange for a chargeable asset in circumstances which are not treated as a disposal. The solution is very similar to that adopted for QCBs.