A share for share exchange takes place where the consideration paid by a purchasing company to the shareholders for their shares in a target company is in the form of shares. This document discusses the capital gains tax implications where shares are sold in exchange for new shares, together with the takeovers involving cash; different classes of shares; and interaction with entrepreneurs’ relief.

This guidance note considers the capital gains tax implications where shares are sold in exchange for new shares. The consideration paid by a purchasing company to the shareholder(s) for their shares in a target company could be in the form of either:

  • new shares in the vendor in exchange for shares in the target company (a 'share for share exchange')
  • cash
  • loan notes issued by the vendor company
  • a mixture of the above

This guidance note covers the tax implications of consideration in the form of shares or a mixture of shares and cash. For details on the tax implications of consideration in the form of loan notes, see the Loan notes and Qualifying Corporate Bonds (QCBs) and non QCBs guidance note.

The timing of the consideration also needs to be considered. Consideration may be paid straight away or it may be deferred. Deferred consideration may be fixed or the amount may be variable. For more information on these, see the Tax treatment of earn-outs and deferred consideration guidance note.

Share for share exchange

Where shareholders disposing of their shares receive shares in the acquiring company, CGT is deferred if the acquiring company gets more than 25% of target company's share capital (or the greater part of the voting power in the target), and the transaction is considered by HMRC to be for commercial reasons and not for tax avoidance.

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