Taxation of Chargeable Gains Act 1992 Schedule 5AA paragraph 3

Second condition: equal entitlement to new shares

Section 3 of Schedule 5AA sets out the second condition that must be met for a scheme of reconstruction to qualify for capital gains tax relief, requiring that all holders of the same class of shares in the original company or companies have an equal entitlement to acquire shares in the successor company or companies.

• Every shareholder holding the same type of relevant shares must receive the same entitlement to acquire ordinary shares in the successor company or companies — no shareholder in a given class may be treated more or less favourably than another.
• Where there is a single original company, relevant shares are those forming part of its ordinary share capital, or, if only certain classes are involved, those in the class or classes participating in the reconstruction scheme.
• Where there are multiple original companies, the same principle applies across each company — relevant shares are those in the ordinary share capital of any of those companies, or in the specific class involved in the scheme.
• The condition ensures fairness among shareholders and prevents selective or preferential treatment of particular shareholders within the same class during the reconstruction.