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HMRC internal manual

Capital Gains Manual

Gifts: exchange for shares

Where assets are transferred to a company in return for shares and/or the creation of loan accounts, the question that has to be answered is what `actual consideration’ was given for the transfer of the particular asset. This is because where there is actual consideration, under Section 165 (7), the held-over gain is restricted to

A - (B-C)


A is the unrelieved gain on the disposal,

B is the actual consideration, and

C is the total of the sums allowable as a deduction under TCGA92/S38.

This means that the amount charged, assuming that there are no further adjustments to the held-over gain, is restricted to (B - C). However because indexation is not taken into account in this calculation, the actual chargeable gain before hold-over relief may well be lower than (B - C) and therefore there will be no relief.

If assets are transferred in return for shares it is likely that very little relief will be available, because the item to take into account at B in the formula in the last paragraph is the market value of the shares issued to the taxpayer, taking into account the transfer of assets. But if there are several shareholders in the new company, each holding must be valued separately.