What is a scheme of reconstruction under Schedule 5AA paragraph 1 of the Taxation of Chargeable Gains Act 1992?

A scheme of reconstruction for the purposes of section 136 TCGA 1992 refers to any plan or arrangement involving a merger, division, or other form of corporate restructuring. To qualify, the scheme must satisfy both the first and second prescribed conditions, and must also meet either the third or the fourth condition set out in Schedule 5AA.

What conditions must a scheme of reconstruction satisfy under Schedule 5AA?

The scheme must satisfy both the first condition and the second condition as mandatory requirements. Additionally, the scheme must satisfy either the third condition or the fourth condition. Failing to meet both of the first two conditions, or failing to meet either the third or fourth condition, means the arrangement does not qualify as a scheme of reconstruction.

What happens if a restructuring fails to meet all the required conditions under Schedule 5AA?

If a restructuring fails to meet both of the first two conditions, it cannot be a scheme of reconstruction regardless of other conditions being met. Similarly, if a scheme meets the first two conditions but fails to meet either the third or the fourth condition, it also falls outside the statutory definition under section 136 TCGA 1992.

Can a merger between two companies qualify as a scheme of reconstruction under section 136 TCGA 1992?

Yes, a merger can qualify as a scheme of reconstruction under section 136, but only if the restructuring plan satisfies both the first and second conditions in Schedule 5AA and also satisfies either the third or the fourth condition. Meeting conditions one, two, and three, or conditions one, two, and four, would qualify the merger.

Taxation of Chargeable Gains Act 1992 Schedule 5AA paragraph 1

Introductory

Schedule 5AA paragraph 1 defines what constitutes a "scheme of reconstruction" for the purposes of section 136 of the Taxation of Chargeable Gains Act 1992.

A "scheme of reconstruction" covers mergers, divisions, or other forms of corporate restructuring.
Any such scheme must satisfy both the first and second prescribed conditions to qualify.
In addition to those two mandatory conditions, the scheme must also meet either the third or the fourth condition.
Meeting only some of these requirements means the arrangement will not be treated as a scheme of reconstruction under section 136.

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