Taxation of Chargeable Gains Act 1992 section 255E

Reorganisations involving shares to which SI relief is attributable

Section 255E sets out special capital gains tax rules that apply when shares qualifying for Social Investment (SI) tax relief are involved in share reorganisations, rights issues, share-for-share takeovers, or company reconstructions.

• Where an investor holds shares of different SI relief status in the same company, each category is treated as a separate holding for reorganisation purposes — those with both SI relief and hold-over relief, those with SI relief only, and those with neither relief.
• In a rights issue, if SI relief is attributable to either the existing shares or the newly allotted shares, the normal rule treating old and new shares as the same asset is switched off, so actual disposals and acquisitions are recognised for capital gains tax.
• For share-for-share takeovers and company reconstructions, the normal rules treating original and replacement shares as the same asset generally do not apply where SI relief is attributable to the original shares.
• An exception allows the normal takeover and reconstruction rules to apply where the acquiring company has a track record of issuing SI-qualifying shares with compliance certificates, the transaction occurs more than three years after the investor acquired the original shares, and the replacement shares themselves meet the SI relief conditions.