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HMRC internal manual

Guidance on Real Estate Investment Trusts

Capital gains: company reconstructions (section 135 TCGA)



Section 135 TCGA 1992 may apply when a holder of shares or debentures in one company exchanges them for shares or debentures issued by another. When section 135 does apply, the new shares or debentures are treated as the same asset as the original shares or debentures. In other words, there is no disposal for capital gains purposes and any gain or loss latent in the original assets is ‘rolled over’ into the new assets. There are no special rules governing the operation of section 135 in the context of companies within Part 12 CTA 2010 (Real Estate Investment Trusts).


For detailed guidance on section 135 TCGA 1992, see CG52521+.


This example illustrates the operation of section 135 TCGA 1992 where a UK-REIT is involved.

Company T is a property investment company, which is not within Part 12 CTA 2010. The holders of shares in T exchange them for newly-issued shares in unconnected company G. G is a member of a Group REIT. Assume the conditions necessary for section 135 to apply are met (CG52523).

The shares in G which are acquired by the former shareholders of T are treated as having the same date of acquisition and CG base cost as their T shares. The CG base cost of the T shares in G’s hands is equal to their market value at the time of the exchange. This is the normal effect of section 135 TCGA 1992. T becomes a member of the G group because of the share exchange. Section 536 CTA 2010 applies to T at this point:

  • The property rental business of T is treated as ceasing;
  • The property rental assets held by T are treated as being sold by T and immediately re-acquired by the property rental business of T for consideration equal to their market value;
  • This deemed sale and re-acquisition does not give rise to any chargeable gain (or allowable loss); and
  • An entry charge will apply to T on entry to the Group REIT (section 538 CTA 2010) (see GREIT11205).
  • See also the section on capital allowances at GREIT04010 for the application of the shadow capital allowance regime which applies to the property rental assets when T enters the REIT regime.