Taxation of Chargeable Gains Act 1992, section 128

Consideration given or received by holder

Part IV Shares, securities, options etc.

(1)Subject to subsection (2) below, where, on a reorganisation, a person gives or becomes liable to give any consideration for his new holding or any part of it, that consideration shall in relation to any disposal of the new holding or any part of it be treated as having been given for the original shares, and if the new holding or part of it is disposed of with a liability attaching to it in respect of that consideration, the consideration given for the disposal shall be adjusted accordingly.

(2)There shall not be treated as consideration given for the new holding or any part of it—

(a)any surrender, cancellation or other alteration of the original shares or of the rights attached thereto, or

(b)any consideration consisting of any application, in paying up the new holding or any part of it, of assets of the company or of any dividend or other distribution declared out of those assets but not made,

and, in the case of a reorganisation on or after 10th March 1981, any consideration given for the new holding or any part of it otherwise than by way of a bargain made at arm’s length shall be disregarded to the extent that its amount or value exceeds the relevant increase in value; and for this purpose “the relevant increase in value” means the amount by which the market value of the new holding immediately after the reorganisation exceeds the market value of the original shares immediately before the reorganisation.

(3)Where on a reorganisation a person receives (or is deemed to receive), or becomes entitled to receive, any consideration, other than the new holding, for the disposal of an interest in the original shares, and in particular—

(a)where under section 122 he is to be treated as if he had in consideration of a capital distribution disposed of an interest in the original shares, or

(b)where he receives (or is deemed to receive) consideration from other shareholders in respect of a surrender of rights derived from the original shares,

he shall be treated as if the new holding resulted from his having for that consideration disposed of an interest in the original shares (but without prejudice to the original shares and the new holding being treated in accordance with section 127 as the same asset).

(4)Where for the purpose of subsection (3) above it is necessary in computing the gain or loss accruing on the disposal of the interest in the original shares mentioned in that subsection to apportion the cost of acquisition of the original shares between what is disposed of and what is retained, the apportionment shall be made in the like manner as under section 129.

Definitions used in section 128 11

reorganisation

(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).

Defined in s.126(1) · see it in the full Act
the new holding

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
new holding

(5) In sub-paragraph (2) above “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.

Defined in Sch.5B para.9(5) · see it in the full Act

(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).

Defined in s.126(1) · see it in the full Act

(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
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

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

Defined in s.126(1) · 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
surrender

(7A) In the application of this Act to Scotland “surrender” includes renunciation.

Defined in s.288(7A) · see it in the full Act
assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
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
market value

(5AA) In this Act “market value” in relation to shares of a given class in an open-ended investment company the prices of which are published regularly by the authorised corporate director of that company (whether or not those shares are also quoted in The Stock Exchange Daily Official List) shall mean an amount equal to the price so published on the relevant date, or if no price was published on that date, on the latest date before that date.

Defined in s.272(5AA) · see it in the full Act

(5) In this Act “market value” in relation to any rights of unit holders in any unit trust scheme the buying and selling prices of which are published regularly by the managers of the scheme shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.

Defined in s.272(5) · see it in the full Act

(1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.

Defined in s.272(1) · see it in the full Act

(4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.

Defined in Sch.7D para.1(4) · see it in the full Act
capital distribution

In this sub-paragraph “capital distribution” has the same meaning as in section 122.

Defined in Sch.5AA para.4(4) · see it in the full Act

Cases considering section 128 3

Unilever (UK) Holdings Ltd v Inspector of Taxes

[2002] EWCA Civ 1787 · 11 December 2002Limits

The provision applies only where a new holding exists. Since the cancellation of the preference shares produced no new holding, the payment of approximately £6.9 million could not be consideration for a new holding under this provision. (see Conclusions) The provision was considered in the argument about whether cash paid on cancellation of preference shares would be taxable. The court did not decide that issue independently because it held that there was no reorganisation. (see The Arguments on the Appeal; Conclusions)

Delinian Limited v The Commissioners for HMRC

[2023] EWCA Civ 1281 · 3 November 2023Interprets

The judgment records the treatment of consideration other than the new holding as a disposal of an interest in the original shares. (see paras [20]-[23]) The judgment applies the consideration rule in section 128(3) as part of explaining how a share reorganisation treats non-share consideration. (see para [22])

Hancock & Anor v Revenue & Customs

[2017] EWCA Civ 198 · 25 May 2017

Treated with sections 127 and 129-130 as part of the rollover provisions which must otherwise apply before section 116 can be engaged. (see [57]-[61])

What each judgment says about section 128 is in the case-law panel in the full Act.

Amendments and notes

11 notes from legislation.gov.uk

Modifications

  1. C207Ss. 127-131 excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1), Sch. 7 para. 7(1)(a) (with Sch. 7 para. 9(1))
  2. C208Ss. 127-131 restricted by The Personal Equity Plan Regulations 1989 (S.I. 1989/469), reg. 27(3) (as substituted (with effect in accordance with reg. 1(3) of the amending S.I.) by S.I. 1998/1869, regs. 1(1), 12)
  3. C209Ss. 127-131 restricted (6.4.1999) by The Individual Savings Account Regulations 1998 (S.I. 1998/1870), regs. 1, 34(4)
  4. C212Ss. 127-130 excluded (with effect in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 15 para. 81(1)
  5. C213Ss. 127-130 excluded (28.7.2000) by Finance Act 2000 (c. 17), Sch. 14 para. 58
  6. C215Ss. 127-130 applied by Finance Act 1996 (c. 8), s. 93B(3)(a) (as inserted (with effect in accordance with Sch. 11 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), s. 77(1) (with s. 77(2)))
  7. C216Ss. 127-130 excluded (with effect in accordance with s. 723(1)(a)(b) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), s. 723, Sch. 2 para. 88 (with Sch. 7)
  8. C220Ss. 127-131 applied by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), regs. 69Z24E(2), 69Z24F(3) (as inserted (1.8.2012) by S.I. 2012/1783, regs. 1, 4)
  9. C222Ss. 127-131 applied (with modifications) (with application in accordance with Sch. 3 para. 5(1)-(3) of the amending Act) by Finance Act 2020 (c. 14), Sch. 3 para. 5(7)(a)
  10. C223S. 128 applied (with effect in accordance with art. 1(2)(3), Sch. 1 of the affecting S.I.) by The Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), regs. 1(1), 47(2)
  11. C224S. 128 applied by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), reg. 85Z8 (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by S.I. 2010/294, regs. 1(1), 21)