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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching: bringing amounts back into account: shares exchanged for QCB

Disposals within TCGA92/S116(10)

Exchanges before 6 April 2010

Where there is an exchange of shares for an asset that is a qualifying corporate bond (QCB) TCGA92/S116 (10) deems there to be no disposal (see CG53822+).

Reg 9, SI2002/1970 applies instead so that the amount that would have been brought into charge under Reg 4 (CFM62300) is added to the market value of the bond for the purposes of the calculation in S116(10). If the amount that would have been brought into charge

  • is an exchange gain, it is added to the market value,
  • is an exchange loss, it is deducted from the market value, and
  • if the net loss is greater than the market value of the bond the excess is treated as a chargeable loss accruing to the company on disposal of the bond.

The amount is therefore brought into charge on a subsequent disposal of the QCB. S116 (10)(c) ensures that the exemption for chargeable gains on qualifying corporate bonds in TCGA92/S115 does not extend to chargeable amounts in S116 (10).

See CFM62410 for an example of how Reg 9 works.

See CFM62450 for an example of where an exchange of shares for a QCB takes place after a no-gain, no-loss disposal.

Exchanges on or after 6 April 2010

A new regulation 2(1A) of the EGLBAGL Regulations provides that an exchange of shares for a QCB, to which TCGA92/S116(10) applies, is treated as a disposal for the purposes of the Regulations - thus, for this limited purpose, over-riding the ‘no disposal’ fiction imposed by S116(10).

This means that the normal provisions in regulation 4 (CFM62290) apply when you make the chargeable gains computation required by S116(10)(a). The amount treated as disposal consideration for the shares is increased by any ‘net gain’ or reduced by any ‘net loss’ (with any excess net loss being added to the acquisition cost). No special rule is needed to achieve this, so regulation 9 is omitted from the Regulations with effect from 6 April 2010.

As previously, the chargeable gain or allowable loss that has been computed will be brought into charge when the company disposes of the QCB.