What does section 145 of the Income Tax Act 2007 do?

Section 145 provides that when a newly formed company acquires all shares in an existing company purely by issuing its own shares, the exchange is not treated as a disposal or acquisition for share loss relief purposes. This applies where EIS relief is not involved and the exchange meets the capital gains tax share reorganisation rules under TCGA 1992.

What conditions must be met for the share exchange relief under section 145 to apply?

The new company must acquire every share in the old company, giving only newly issued shares as consideration. Each class of new share must correspond exactly to a class of old share with identical rights, allotted proportionally to existing holders. The exchange must also qualify under the capital gains tax share reorganisation rules of TCGA 1992.

What does 'corresponding description' mean for shares under section 145?

Old shares and new shares are of a corresponding description if, were they imagined as shares in the same company, they would be of the same class and carry identical rights. This ensures the like-for-like requirement is applied consistently, so each type of new share genuinely mirrors the old share it replaces in the exchange.

How does section 145 interact with TCGA 1992 anti-avoidance provisions?

Section 145 disapplies two potentially conflicting TCGA 1992 provisions. The rule in section 136(2) concerning disposals of new shares does not apply, and the control and independence requirement in section 139 does not apply to qualifying exchanges or arrangements made with a view to carrying them out, preventing inadvertent denial of relief.

Income Tax Act 2007 section 145

Relief after an exchange of shares for shares in another company

Section 145 sets out the conditions under which a share-for-share exchange between two companies is treated as having no disposal or acquisition for the purposes of share loss relief, where EIS relief does not apply to the shares concerned.

Where a newly formed company (with only subscriber shares) acquires all the shares in an existing company purely in exchange for newly issued shares, the swap is not treated as a disposal of the old shares or an acquisition of the new shares for share loss relief purposes.
The exchange must be on a like-for-like basis: each class of new share must correspond exactly to a class of old share, carrying the same rights, and must be issued proportionally to the existing holders.
The exchange must also qualify under the capital gains tax share reorganisation rules (section 127 of TCGA 1992 as applied by section 135(3)), so that no chargeable disposal arises.
Certain anti-avoidance provisions dealing with disposals of new shares and control requirements do not override these share exchange rules or any arrangements made with a view to such an exchange.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member