Taxation of Chargeable Gains Act 1992 section 138ZC

Election to disapply section 135 or 136

Section 138ZC allows the recipient of shares or debentures in a share exchange or company reconstruction to elect out of the normal tax-neutral treatment, so that the transaction is instead treated as a disposal and acquisition giving rise to an immediate chargeable gain or allowable loss.

• Where a company issues shares or debentures in exchange for shares or debentures in another company and the special rules in section 138ZB would normally apply, the person receiving the new securities can choose to opt out of that treatment.
• Making the election means the exchange or reconstruction is not treated as a tax-free reorganisation, so the original shares are treated as disposed of and a chargeable gain or loss may arise at that point.
• The election also switches off section 138ZB, which would otherwise impose particular UK tax consequences on the exchange.
• The election must be made no later than the first anniversary of the 31 January following the tax year in which the new shares or debentures are issued — for example, for shares issued in 2023/24 the deadline would be 31 January 2026.