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HMRC internal manual

Capital Gains Manual

Capital distributions: definition: share reorganisation

TCGA92/S122 does not apply to the issue of any shares or debentures as part of a share reorganisation. Therefore a bonus issue or a rights issue at a discount to the market value of the existing shares is not treated as a capital distribution.

A share reorganisation may however involve the receipt of cash as well as the issue of new shares or debentures. The cash payment may be offered to all shareholders as part of the terms of the reorganisation, for example, as part of the consideration on a takeover. Or it may arise where, for example, the reorganisation provides for an issue of one new share for every 10 shares held, and any fractional entitlements to new shares are sold in the market on behalf of the shareholders entitled to them and the cash proceeds paid over.

Such cash payments fall within TCGA92/S128(3), see CG51875 -CG51876. But that does not prevent them from qualifying for the small part disposals treatment in Section 122(2), see CG57835+, provided that the cash amount is sufficiently small.

For advice on share reorganisations generally, see CG51700+.