Taxes Consolidation Act 1997 section 586

Company amalgamations by exchange of shares

Section 586 provides that where a company issues shares to a person in exchange for shares in another company, the exchange is treated as a reorganisation of share capital rather than a disposal for capital gains tax purposes, provided certain conditions are met.

• Where a company issues shares or debentures in exchange for shares or debentures of another company, section 584 applies as if the two companies were the same company and the exchange were a reorganisation of its share capital, so there is no chargeable disposal on the exchange.
• The relief applies only where the issuing company has, or will have as a result of the exchange, control of the other company, or where it makes a general offer to the other company's shareholders on terms that would give it control if the offer were satisfied.
• The exchange must be for bona fide commercial reasons and must not form part of an arrangement the main purpose or one of the main purposes of which is the avoidance of tax; the relief does not apply where the issuing company is an investment undertaking within the meaning of section 739B.
• Since 4 December 2002, the relief does not apply where debentures, loan stock or similar securities are issued in exchange for shares, except in limited circumstances such as a pre-existing binding written agreement, an intra-group exchange, or a publicly announced recommended offer made before that date.