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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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CVS: deferral relief: company restructuring: reorganisation of share capital

FA00/SCH15/PARA81

Where there is a company reorganisation falling within TCGA92/S126 (2)(a) and, immediately after the reorganisation, investment relief is attributable either to the shares comprised in the investing company’s existing holding before the rights issue (and they have been held by the company continuously from the time they were issued until the reorganisation), or to shares allotted in respect of the existing holding under the reorganisation, or to both, the normal share reorganisation rules in TCGA92/S127 to S130, see CG51700 onwards, are disapplied with one exception set out below.

Similarly, where the reorganisation within TCGA92/S126 (2)(a) involves the issue of a qualifying corporate bond the normal rule in TCGA92/S116 (10), see CG53845, is disapplied. The investing company is treated as disposing of the shares held before the reorganisation. Any chargeable gain or allowable loss arising on those shares will be crystallised at that time and cannot be postponed under TCGA92/S116(10).

Company reorganisations within TCGA92/S126(2)(a) are ones in which new shares or debentures are allotted to shareholders in the company in respect of, and in proportion to, their existing holdings.

In particular, where there is a rights issue TCGA92/S127 to S130 do not apply in relation to the existing holding, so that it is treated as a separate asset from the allotted shares or debentures. The allotted shares or debentures will, therefore, be treated for TCGA92 purposes as acquired by the investing company at the time of the reorganisation.

The exception to the above rules is a reorganisation which consists of an issue of bonus shares which are ‘corresponding bonus shares’ (see VCM93030). The normal rule in TCGA92/S127 still applies in such circumstances. Any investment relief, and any deferred gains attributable to the original shares held before the corresponding bonus issue are spread evenly over the enlarged holding including the bonus shares.