TCGA 1992 s.126 – Application of sections 127 to 131

(1) For the purposes of this section and sections 127 to 131 “reorganisation” means a reorganisation or reduction of a company’s share capital, and in relation to the reorganisation—

(a) “original shares” means shares held before and concerned in the reorganisation,

(b) “new holding” means, in relation to any original shares, the shares in and debentures of the company which as a result of the reorganisation represent the original shares (including such, if any, of the original shares as remain).

(2)The reference in subsection (1) above to the reorganisation of a company’s share capital includes—

(a)any case where persons are, whether for payment or not, allotted shares in or debentures of the company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of shares in the company or of any class of shares in the company, and

(b)any case where there are more than one class of share and the rights attached to shares of any class are altered.

(3)The reference in subsection (1) above to a reduction of share capital does not include the paying off of redeemable share capital, and where shares in a company are redeemed by the company otherwise than by the issue of shares or debentures (with or without other consideration) and otherwise than in a liquidation, the shareholder shall be treated as disposing of the shares at the time of the redemption.

Definitions used in section 126 6

company: “company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).
Defined in Sch.2 para.5(5) · see it in the full Act
shares: “shares” includes stock;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.
Defined in Sch.7AC para.10(5) · see it in the full Act; (b) “shares” includes securities,
Defined in Sch.7 para.4(2) · see it in the full Act
the shares: (5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).
Defined in Sch.7ZB para.1(5) · see it in the full Act; (a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and
Defined in Sch.5B para.13(12) · see it in the full Act
original shares: (4) In sub-paragraph (1) “original shares” and “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.
Defined in Sch.7AC para.14(4) · see it in the full Act
the original shares: (4) Sub-paragraph (5) applies if corresponding bonus shares are issued in respect of all or some of the relevant SEIS shares (“the original shares”) to which relief is attributed under this paragraph.
Defined in Sch.5BB para.4(4) · see it in the full Act; and in paragraph (b) above “the original shares” and “the new holding” have the same meaning as they have for the purposes of sections 127 to 130.
Defined in s.116(1) · see it in the full Act
class: “class”, in relation to shares or securities, means a class of shares or securities of any one company;
Defined in s.288(1) · see it in the full Act

Cases considering section 126 4

Hancock & Anor v Revenue & Customs

[2017] EWCA Civ 198 · 25 May 2017Defines

The definition of original shares and new holding permits aggregation in a share reorganisation. Applied with necessary adaptations to conversions, it did not justify aggregating securities with different fiscal status. (see [58]; [63]-[66])

Unilever (UK) Holdings Ltd v Inspector of Taxes

[2002] EWCA Civ 1787 · 11 December 2002Interprets

The court interpreted the definition of reorganisation as applying for the purposes of sections 126 to 131. A reduction of capital does not constitute a reorganisation unless it falls within the statutory scheme and can produce a new holding. (see Conclusions) The court held that the reference to altered rights concerns alteration of the rights themselves, not a change in their commercial significance or enjoyment. Cancellation of preference shares did not enhance the rights attached to the ordinary shares. (see Conclusions)

Hancock and another v Commissioners for Her Majesty’s Revenue and Customs

[2019] UKSC 24 · 22 May 2019

The exchange of the appellants’ shares for redeemable loan notes was a reorganisation within the provision (see para [2]).

Harding v Revenue & Customs[2008] EWCA Civ 1164 · 23 October 2008

What each judgment says about section 126 is in the case-law panel in the full Act.