Taxation of Chargeable Gains Act 1992 section 135

Exchange of securities for those in another company

Section 135 provides a capital gains tax deferral when shareholders exchange their shares or debentures in one company for new shares or debentures issued by another company, provided certain conditions about the level of ownership or control are met.

• Where company B acquires shares or debentures in company A by issuing its own shares or debentures in exchange, the transaction can be treated as a tax-neutral reorganisation rather than a disposal, deferring any capital gains tax charge.
• The relief applies in three cases: where company B holds or will hold more than 25% of company A's ordinary share capital; where company B makes a general takeover offer conditional on gaining control of company A; or where company B holds or will hold the greater part of the voting power in company A.
• The definition of ordinary share capital is extended to cover rights in unit trust schemes treated as shares and interests held by members of companies that have no share capital.
• The exchange must be carried out for genuine commercial reasons and must not form part of a tax avoidance arrangement; otherwise the relief will not apply.