Taxation of Chargeable Gains Act 1992 section 136

Scheme of reconstruction involving issue of securities

Section 136 provides tax relief where shareholders or debenture holders in one company receive shares or debentures in another company as part of a genuine scheme of reconstruction, by treating the transaction as though it were a simple internal reorganisation of share capital rather than a taxable disposal.

• Where a scheme of reconstruction involves company B issuing shares or debentures to the shareholders or debenture holders of company A, in proportion to their existing holdings, the transaction is treated as a share reorganisation rather than a disposal, deferring any capital gains tax charge.
• The normal share reorganisation rules (sections 127 to 131) apply as if both companies were the same company, meaning the new shares or debentures in company B effectively inherit the original base cost and acquisition date of the holdings in company A.
• The shares or debentures in company A may be cancelled, extinguished, or retained (including with altered rights), and if company A reorganises its own share capital as part of the scheme, the relief applies to the position after that reorganisation.
• The relief is subject to an anti-avoidance requirement under section 137(1): the scheme of reconstruction must be carried out for genuine commercial reasons and must not form part of arrangements designed to avoid tax.