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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Business expansion scheme: share reorganisation rules (2): share exchanges

TCGA92/S150 (8), (8A) - (8C) & (8D)

When a BES company is taken over, the acquiring company may issue its own shares in consideration for the original shares; that is the shares which have attracted BES relief.

For Income Tax purposes this is a disposal of the original shares even though new shares are issued in exchange. If the takeover occurred in the investor’s five year relevant period then BES relief will be reduced or withdrawn.

The Capital Gains Tax treatment is as follows:

Original BES shares issued on or before 18 March 1986

The normal share exchange provisions of Section 135 TCGA 1992 are unaffected.

Original BES shares issued after 18 March 1986

The rules in TCGA92/S135 can only apply, TCGA92/S150(8), IF -

all the BES relief given on the original shares was withdrawn, possibly as a result of the take-over, S 150(8) TCGA 1992;


the new shares were issued on or after 29 November 1994 by a BES company, after the five year relevant period for the original shares, S 150(8A) to (8C) TCGA 1992;


the new shares were issued on or after 6 April 1998 and the share exchange fell within TCGA92/S150(8D). That rule effectively applies the provisions of ICTA88/S304A for tax purposes - relief continues where all that happens is that a new parent is placed over a BES company and the Board of Inland Revenue was satisfied that the anti-avoidance provision rule in TCGA92/S137 did not apply, S 150A(8D) TCGA 1992.