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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 2 Share Incentive Plan (SIP): Company reconstructions: What they include

A company reconstruction is defined by paragraph 86 as a transaction where a new holding of shares or securities is equated with the original holding for CGT purposes (or would equate if the new holding did not consist of or include a qualifying corporate bond within the meaning of section 117 TCGA 1992), and the new shares or securities do not include:

  • redeemable shares or securities issued as mentioned in section 1000(1) of CTA 2010 - this refers to shares or securities issued other than wholly for new consideration or not properly referable to new consideration,
  • share capital issued in circumstances that section 1022(3) of CTA 2010 applies - this covers share capital issued as paid up other than by way of new consideration (bonus issues), or
  • share capital to which section 410 of Income Tax (Trading and Other Income) Act 2005 applies, that is issued in a case where section 410(1) or (3) of ITTOIA 2005 applies (stock dividends).

Further guidance on each of the excluded types of securities can be found in the Company Taxation Manual. ESSU does not comment on the application of the legislation in question. 

Whether the new holding is equated with the original holding for the purposes of capital gains tax in paragraph 86 (and elsewhere in Schedule 2) is to be determined in accordance with the requirements of Chapter II of Part IV TCGA 92.

Company reconstructions include one company taking over another in exchange for an issue of shares or other securities, or a company making a bonus issue of shares or securities in circumstances where section 1022(3) of CTA 2010 does not apply. If paragraph 86 applies, the tax reliefs allowable in respect of the existing plan shares can be carried forward into the new shares or securities – see below.

HMRC’s SIP specimen rules at ETASSUM28220 include a rule which closely mirrors the provisions of paragraphs 86 and 87. However, there is no requirement for a Schedule 2 SIP to make any provision relating to company reconstructions and the statutory provisions are effective in all cases whether or not such a provision is included.