Taxation of Chargeable Gains Act 1992 section 34

Reorganisations etc: deemed accrual of chargeable gain or allowable loss held over on earlier transaction

Section 34 addresses how the substantial shareholding exemption interacts with chargeable gains or allowable losses that have been deferred under the reorganisation rules and are deemed to accrue at a later date.

• The substantial shareholding exemption does not apply to any chargeable gain or allowable loss that is deemed to accrue on a disposal under the rules in section 116(10)(b), which deal with gains or losses held over from an earlier reorganisation, conversion or reconstruction.
• This means that where a gain was originally deferred because qualifying corporate bonds replaced other assets in a reorganisation, the deferred gain remains chargeable when it crystallises, regardless of whether the substantial shareholding exemption would otherwise apply.
• There is one exception: the rule does not bite where the earlier transaction was a deemed disposal and reacquisition under section 92(7) of the Finance Act 1996, relating to convertible securities moving into the loan relationship regime, provided the relevant period of account began before 1 January 2005.
• In that specific convertible securities scenario, the substantial shareholding exemption can still apply to the gain or loss that is deemed to accrue.