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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: more complex cases: shares received in other reconstructions

This is the fourth of a group of complicating factors in which a shareholder comes to own shares or other assets by virtue of their already owning shares in the same, or a different company (for the others, see VCM75300 and VCM75330+). Subject to certain conditions being met, it may be that the newly acquired shares can also give rise to Share Loss Relief when disposed of and if that is so then questions arise as to the amount of loss properly attributable to them.

In the cases of bonus issues and rights issues, the new shares are issued by the same company as issued the original (‘old’) shares. They are examples of that company reorganising its share capital as that term is defined in TCGA92/S126, resulting in section 127 applying. Section 127 may also apply where a company (D) transfers its business to one or more successor companies in a scheme of division or merger and the successor company or companies issue shares to D’s shareholders, though this is not a reorganisation of a company’s share capital within the scope of section 126. The new shares may be seen as replacing the value lost from the D shares as a result of the transfer and subject to certain conditions TCGA92/S136 will often apply, leading to the application of section 127. (For guidance on TCGA92/S136, see CG52700+).

An individual may be eligible for Share Loss Relief on the disposal of shares in the successor company provided certain conditions are met. ITA07/S136 imposes a general prohibition on relief in respect of new shares where those new shares are identified under TCGA92/S127with other shares (old shares) which are no longer held. That prohibition is then lifted where one of two alternative conditions is met. For general guidance on ITA07/S136, see VCM75390.

You should establish whether the old shares with which the newly-issued shares are identified under TCGA92/S127 are still held at the time the new shares are disposed of. If they are, then ITA07/S136 will not be in point and the question of whether Share Loss Relief is available in respect of an allowable loss on the new shares will be determined by applying the rules in ITA07/PT4/CHP6 to the new shares in their own right. An allowable loss on disposal of the new shares will reflect losses or gains attributable to the period of ownership of the old shares: this is effect of TCGA92/S127.