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Capital gains tax implications of a reorganisation—basic principles

On a reorganisation, the relevant shares which were held before the reorganisation are effectively replaced by new shares and debentures of the company.

For capital gains purposes, a reorganisation is treated as a 'non-disposal' in that there is no disposal of the original shares¹ or any acquisition of the new holding².

Essentially, the original shares (taken as a single asset) and the new holding (taken as a single asset) are treated as the same asset. The new holding is deemed to have been acquired when the original shares were acquired and for the same consideration³. To the extent that any of the original shares are still held after the reorganisation, they are included in the new holding. As to the allocation of allowable expenditure between the elements of the new holding, see D6.223 and D6.224.

Example

S holds 50,000 £1 ordinary shares in PQR plc, and 20,000 £1 convertible preference shares. There is a reorganisation of the share capital