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April 11, 2022

Share for share exchanges – could you benefit?

What is a share for share exchange?

A share for share exchange takes place when one company issues shares to a person in exchange for shares in a different company.

If the specific conditions in the relevant legislation (TCGA 1992) are met, then the share for share rules will apply. However, this will need careful analysis.

What is the effect of the share for share rules?

The effect of the share for share rules is that the person’s old shares are effectively swapped for the new shares issued to them.

There is no disposal by the person for Capital Gains Tax (“CGT”) purposes and therefore no CGT payable.

The new shares effectively ‘stand in the shoes’ of the old shares – this means that they have the same base cost and acquisition date as the person’s original shares.

When might a share for share exchange be beneficial?

Typical scenarios when a share for share exchange might be beneficial include the following:

  • Inserting a holding company (e.g. for asset protection, succession planning etc);
  • In a company group restructuring;
  • On a company takeover (where some of the consideration is in the form of shares).

What else do I need to know?

The share for share exchange must take place for ‘bona fide commercial reasons’ for the rules to apply and not for tax avoidance purposes.

It is possible to apply to HMRC for clearance that the conditions for share for share relief to apply are met prior to the transaction. However, careful thought needs to be made into making a robust HMRC clearance application to avoid receiving HMRC’s rejection; for example, if the commercial purpose for the business is not clear – please see our recent blog  on clearance applications for more details about this.

The share for share rules can also apply to debentures of companies, but we would recommend seeking specialist advice in relation to this.

Why contact PD Tax regarding your share for share exchange?

The analysis of the conditions for the share for share rules to apply in the legislation can be very complex – therefore, specialist tax advice is essential.

Furthermore, if the newly issued shares only form part of the consideration for the person’s old shares (for example on a company takeover) then extra complications can arise in relation to the base cost of the new shares.

As noted above, careful consideration is required when preparing clearance applications for share for share exchanges.

Here at PD Tax Consultants, we have gained extensive experience of advising on and facilitating share for share exchanges and preparing the clearance applications to be sent to HMRC.

Please get in touch with a member of our team if you would like to discuss how you could benefit from the share for share rules and how we can guide you through the process.

Contact us today to discuss your tax requirements.
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