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HMRC internal manual

Corporate Finance Manual

Foreign exchange: matching: bringing amounts back into account: reorganisation of capital following a no gain/no loss disposal

No gain/no loss disposal followed by share reorganisation

Share reorganisations before 6 April 2010

Where there is a no gain/no loss disposal of shares, regulation 8, SI2002/1970 provides that the net exchange gain or loss on a matched liability is deferred and brought into charge at the occasion of the first disposal of the shares that is not no gain/no loss (see CFM62320).

However, if there is a reorganisation or reduction of share capital the company may cease to hold the shares without there having been any disposal for the purposes of the Regulations. This is because TCGA92/S127 normally prevents such a reorganisation being treated as a disposal, and the meaning of disposal in the Regulations follows TCGA 1992.

In these circumstances, a special provision is necessary to ensure that the exchange gain or loss that has been deferred on the earlier transfer is taxed or relieved. Regulation 12, SI2002/1970 provides this (see the example at CFM62450).

There is a corresponding provision in regulation 10, SI2002/1970 to cover the case where, following an earlier no gain, no loss transfer, there is an exchange of shares for QCBs (see CFM62460).

Share reorganisations on or after 6 April 2010

Here again, special rules are no longer needed and regulations 10 and 12 of the EGLBAGL Regulations have been omitted.

When there is an exchange of shares for QCBs on or after 6 April 2010, the event is treated as a disposal for the purposes of the EGLBAGL Regulations, and the disposal consideration for the shares is adjusted under regulation 4, even though the resultant chargeable gain or allowable loss is not brought into account until there is a disposal of the QCB (CFM62400).

The treatment of no gain/no loss disposals under the amended Regulations applies retrospectively, unless a company elects for the change to apply only prospectively (see CFM62340). As a result, if there has been a previous no gain/no loss disposal - even if it has happened before 6 April 2010 - any net gain or net loss accruing to the transferor company is simply aggregated with any net gain or loss accruing to the transferor, when the above calculation is made.

Similarly, where there is a reorganisation of share capital, amounts are brought back into account when there is a disposal of the new holding (CFM62420). If there has previously been a no gain/no loss disposal, exchange gains or losses on hedging instruments held by the transferor and the transferee companies are taken into account in computing the amount to be brought back into account.

Where the no gain/no loss disposal takes place before 6 April 2010, the company making the ‘first relevant disposal’ can elect under regulation 14 of SI 2010/809 for the previous tax treatment to continue to apply. Where shares are exchanged for QCBs, it is the company disposing of the shares that will need to elect; for a share capital reorganisation to which TCGA92/S127 applies, it is the company disposing of the new holding. The effect of the election will be that the treatment prescribed by regulation 10 or, as the case may be, regulation 12 will still apply.