CG65720 - Transfer of a business to a company: consideration wholly or partly in exchange for shares and consideration other than in shares

Consideration wholly or partly in exchange for shares
Consideration other than in shares

Consideration wholly or partly in exchange for shares

The shares must have been issued as consideration for the transfer of the business.

`Shares’ can include shares in a building society share account. A building society is regarded as a company for the purposes of TCGA92/S162. By virtue of TCGA92/S99(1)(b), the rights of unit holders in a unit trust scheme will also be regarded as ‘shares’ for these purposes.

Where consideration is received partly in shares it is not possible to attribute certain types of consideration to different assets. For example, it is not possible to treat cash consideration as being for one asset and an issue of shares for another.

Relief under TCGA92/S162 would not be available in the following circumstances:

  • where an individual has subscribed for an issue of shares as a separate matter or
  • where cash consideration for the transfer of a business that was credited to a loan account is repaid by means of an issue of shares under a later agreement with the company.

It is not always possible for shares to be issued at the time when the business is transferred to the company. For example, the authorised share capital of the company may have to be increased first. There is no time limit for the purposes of TCGA92/S162 by which the shares must be issued but we would expect the issue to take place fairly promptly after the reasons for the delay had disappeared. Drawing on the decision in National Westminster Bank plc v IRC; Barclays Bank plc v IRC [1994] BTC 236, shares are not considered to have been ‘issued’ until the allotment has been registered.

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Consideration other than in shares

Part of the consideration may consist of an amount left owing to the transferor by means of a sum credited to his or her loan or current account with the company. The debt due from the company is effectively cash which the creditor can call for at any time. The amount of the loan or current account should be treated as consideration other than shares, thereby restricting relief, see the example at CG65760.