Taxes Consolidation Act 1997 section 584

Reorganisation or reduction of share capital

Section 584 provides that a reorganisation or reduction of a company's share capital is not treated as a disposal for capital gains tax purposes, so that the new shares are regarded as the same asset as the original shares, deferring any gain or loss until the new shares are ultimately disposed of.

• When a company reorganises or reduces its share capital, the new shares step into the shoes of the old shares — no disposal or acquisition arises, and any gain is deferred until the new shares are sold.
• If additional consideration is paid for the new shares it is treated as enhancement expenditure; if consideration other than the new shares is received, the shareholder is treated as making a part disposal of the original holding.
• Where only part of the new holding is sold, the original cost must be apportioned by reference to market values at the date of disposal, with a special rule applying where any class of share in the new holding is quoted on a stock exchange.
• The relief does not apply where the new holding consists of debentures, loan stock or similar securities issued on or after 4 December 2002 (unless issued under a prior binding written agreement), or where the new holding comprises units in an investment undertaking.