Introduction to this document

Company shares or securities reorganisation clearance letter

Where a company acquires 25% or more of the shares in another, or reorganises its share capital, it can ask for confirmation (clearance under s.138 Taxation of Chargeable Gains Act 1992) that the transaction will not count as a chargeable event for capital gains tax purposes.

How to apply

An application for clearance must be submitted to HMRC’s specialist clearance office in advance of the proposed transaction. A copy of the letter should be sent to the tax office dealing with the company’s tax affairs.

The advantage of obtaining clearance is that it gives the company’s members, i.e. those who hold shares and other securities with controlling rights, certainty over the tax treatment of the transaction.

Where clearance is granted by HMRC, the transaction(s) will not count as a disposal (sale) of the members’ original shares etc. for capital gains tax purposes. The new shares etc. issued as part of the arrangement to replace the originals will stand in their place.

Clearance will only be given by HMRC where it is satisfied that the transaction(s) is being made for a genuine commercial reason, e.g. the takeover of a competitor company, and that there is no tax avoidance involved.

The letter to HMRC must provide full details of the reason for the transaction and how it will be achieved.