LAM03700 - Calculation of ‘I’ Income and chargeable gains: Transactions in shares: share exchanges (where SSE does not apply)

Where a life insurance company holds shares in a company A for the purposes of the life company’s long-term business, and transfers these to another company B in exchange for shares in company B and the conditions of TCGA92/S135 are met, TCGA92/S127 applies. The effect of that is that the life company is not treated as disposing of its shares in A, but as having acquired the shares in B when it acquired the shares in A and for the cost of those shares.

For transfers between group companies TCGA92/S127 applies, and as there is no disposal, S171(3) disapplies S171. Therefore, even though the shares in A cease to be held for the purposes of the life company’s long-term business, FA12/S118(6) does not apply to deem there to be a disposal which would otherwise be subject to the connected party rules in TCGA92/S17 and S18 and therefore deemed to be at market value.

See LAM03730 on the interaction of the share exchange and the substantial shareholding rules.