Taxation of Chargeable Gains Act 1992 Schedule 5AA paragraph 6

Preliminary reorganisation of share capital to be disregarded

Paragraph 6 provides that where a company reorganises its share capital as a preliminary step in a scheme of reconstruction, the key conditions for the scheme are tested by reference to the position after that reorganisation, effectively disregarding the reorganisation itself.

• Where a scheme of reconstruction involves a preliminary reorganisation of share capital, the reorganisation is effectively looked through.
• The reorganisation may be of the original company or, where there are several original companies, any of them.
• The first and second conditions (which test the structure and entitlements of shareholders) are applied to the position as it stands after the reorganisation has taken place.
• This ensures that a preparatory share reorganisation does not prevent the scheme of reconstruction from meeting the necessary qualifying conditions.