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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Building Societies: transfer of business to a company: general

The Building Societies Act 1986 allows a building society to transfer the whole of its business to a company. When a society’s business is transferred to a successor company the members may receive

  • rights in respect of shares in the successor company
  • shares
  • an interest in settled property.

A member is a person who is or has been a member of the society and includes a reference to a member of any particular class or description, TCGA92/S217 (6).

Rights in respect of shares

TCGA92/S217 (1)

The rights conferred on members may be to

  • acquire shares in the successor company in priority to other persons
  • acquire shares in the successor company at less than market value
  • free shares in the successor company.

Any such rights are to be regarded as an option within the meaning of TCGA92/S144 for which the members give no consideration and which have no value. Although this gives the rights conferred on members a clear identity for capital gains purposes, in practice it will have no effect upon the computations in respect of any shares acquired as a result of the rights. Where shares are acquired in this way, their capital gains cost will be the value of any new consideration given by the member. `Free shares’ means any shares received by the member from the society or the successor company in connection with the transfer for which the member gave no new consideration. `New consideration’ means consideration which is not provided directly or indirectly out of the assets of the society or derived from the member’s shares or other rights in the society.

Shares

TCGA92/S217 (2)

Members may acquire shares by direct issue from the successor company or by transfer from the society. In either case the capital gains cost of the shares and their value will be the value of any new consideration, see CG56821, given by the member. If no new consideration is given, cost and value will be nil.

Settled property

TCGA92/S217 (3) & (4)

Where shares in the successor company are issued by that company or disposed of by the society to trustees on terms where they will be transferred to members for no new consideration, see CG56821, and in the trustees’ hands they constitute settled property

  • the shares are regarded as acquired by the trustees at no cost
  • a member’s interest in the settled property shall be regarded as having no cost and no value at the time of acquisition.

When a member becomes absolutely entitled as against the trustees to any of the settled property, see CG34300+, both the member and the trustees are treated as if the shares in question had been disposed of and immediately reacquired by the trustees for consideration which produces no gain and no loss (that is TCGA92/S71 does not apply). On the reacquisition the trustees hold the shares as bare trustees, TCGA92/S60 (1). If the member disposes of an interest in the settled property at any other time and realises a gain, the gain will be chargeable as TCGA92/S76 (1) will not apply.