Taxation of Chargeable Gains Act 1992 section 116

Reorganisations, conversions and reconstructions

Section 116 sets out the capital gains tax treatment where a share reorganisation, conversion of securities or reconstruction involves a mix of qualifying corporate bonds (QCBs) and other shares or securities, disapplying the normal reorganisation rules and instead freezing or releasing gains and losses.

• The normal share reorganisation rules (sections 127 to 130) are switched off where the transaction involves a change between QCBs and non-QCB shares or securities, and the new asset is instead treated as acquired at market value on the date of the transaction.
• Where the old asset is a non-QCB exchanged for a QCB, the gain or loss that would have arisen on a notional disposal of the old asset at market value is frozen and only crystallises when the QCB is subsequently disposed of.
• Where the old asset is a QCB exchanged for non-QCB shares or securities, the transaction is treated as a disposal of the QCB (exempt from tax) and an acquisition of the new shares at market value, adjusted for any cash paid or received.
• The frozen gain or loss is not triggered by certain no gain/no loss transfers (such as transfers between spouses or civil partners, or within a group of companies), but instead passes to the transferee to be released on a later taxable disposal.