Finance Act 1998

Acquisition of share capital by new company

17(1)After section 304 of the Taxes Act 1988 there shall be inserted the following section—

“304AAcquisition of share capital by new company.

(1)This section applies where—

(a)a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another company (“the old company”);

(b)the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company;

(c)the consideration for new shares of each description consists wholly of old shares of the corresponding description;

(d)new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings;

(e)at some time before the issue of the new shares—

(i)the old company issued eligible shares; and

(ii)a certificate in relation to those eligible shares was issued by that company for the purposes of subsection (2) of section 306 and in accordance with that section; and

(f)before the issue of the new shares, the Board have, on the application of the new company or the old company, notified that company that the Board are satisfied that the exchange of shares—

(i)will be effected for bona fide commercial reasons; and

(ii)will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act.

(2)For the purposes of this Chapter—

(a)the exchange of shares shall not be regarded as involving any disposal of the old shares or any acquisition of the new shares; and

(b)any relief under this Chapter which is attributable to any old shares shall be attributable instead to the new shares for which they are exchanged.

(3)Where, in the case of any new shares held by an individual to which relief becomes so attributable, the old shares for which they are exchanged were subscribed for by and issued to the individual, this Chapter shall have effect as if—

(a)the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him;

(b)the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company;

(c)the claim for relief made in respect of the old shares had been made in respect of the new shares; and

(d)his liability to income tax had been reduced under section 289A in respect of the new shares for the same year of assessment as that for which his liability was so reduced in respect of the old shares.

(4)Where, in the case of any new shares held by an individual to which relief becomes so attributable, the old shares for which they are exchanged were transferred to the individual as mentioned in section 304, this Chapter shall have effect in relation to any subsequent disposal or other event as if—

(a)the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for;

(b)the new shares had been issued by the new company at the time when the old shares were issued by the old company;

(c)the claim for relief made in respect of the old shares had been made in respect of the new shares; and

(d)his liability to income tax had been reduced under section 289A in respect of the new shares for the same year of assessment as that for which the liability of the individual who subscribed for the old shares was so reduced in respect of those shares.

(5)Where relief becomes so attributable to any new shares—

(a)this Chapter shall have effect as if anything which, under section 306(2), 307(1A) or 310, has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company; and

(b)any appeal brought by the old company against a notice under section 307(1A)(b) may be prosecuted by the new company as if it had been brought by that company.

(6)For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights; and in subsection (1) above references to shares, except in the expressions “eligible shares” and “subscriber shares”, include references to securities.

(7)Nothing in section 293(8) shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1) above or arrangements with a view to such an exchange.

(8)Subsection (2) of section 138 of the 1992 Act shall apply for the purposes of subsection (1)(f) above as it applies for the purposes of subsection (1) of that section.”

(2)This paragraph has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after 6th April 1998.