Taxation of Chargeable Gains Act 1992, section 136

Scheme of reconstruction involving issue of securities

Part IV Shares, securities, options etc.

(1)This section applies where—

(a) an arrangement between a company (“company A”) and—

(i)the persons holding shares in or debentures of the company, or

(ii)where there are different classes of shares in or debentures of the company, the persons holding any class of those shares or debentures,

is entered into for the purposes of, or in connection with, a scheme of reconstruction, and

(b)under the arrangement—

(i) another company (“company B”) issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their relevant holdings in company A, and

(ii)the shares in or debentures of company A comprised in relevant holdings are retained by those persons or are cancelled or otherwise extinguished.

(2)Where this section applies—

(a)those persons are treated as exchanging their relevant holdings in company A for the shares or debentures held by them in consequence of the arrangement, and

(b)sections 127 to 131 (share reorganisations etc) apply with the necessary adaptations as if company A and company B were the same company and the exchange were a reorganisation of its share capital.

For this purpose shares in or debentures of company A comprised in relevant holdings that are retained are treated as if they had been cancelled and replaced by a new issue.

(3)Where a reorganisation of the share capital of company A is carried out for the purposes of the scheme of reconstruction, the provisions of subsections (1) and (2) apply in relation to the position after the reorganisation.

(4)In this section—

(a) “scheme of reconstruction” has the meaning given by Schedule 5AA to this Act;

(b) references to “relevant holdings” of shares in or debentures of company A are—

(i)where there is only one class of shares in or debentures of the company, to holdings of shares in or debentures of the company, and

(ii)where there are different classes of shares in or debentures of the company, to holdings of a class of shares or debentures that is involved in the scheme of reconstruction (within the meaning of paragraph 2 of Schedule 5AA);

(c)references to shares or debentures being retained include their being retained with altered rights or in an altered form, whether as the result of reduction, consolidation, division or otherwise; and

(d)any reference to a reorganisation of a company’s share capital is to a reorganisation within the meaning of section 126.

(5)This section applies in relation to a company that has no share capital as if references to shares in or debentures of the company included any interests in the company possessed by members of the company.

(6)This section has effect subject to [F717 section 137 (anti-avoidance)F717] .F716]

Definitions used in section 136 9

arrangements

“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

Defined in s.16A(2) · see it in the full Act

(1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Defined in s.169G(1) · see it in the full Act
arrangement

(1) In sections 169B to 169E “arrangement” or “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Defined in s.169G(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
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
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
scheme of reconstruction

(b) “scheme of reconstruction” has the meaning given by paragraph 1 of Schedule 5AZA;

Defined in s.103J · see it in the full Act
company A

(3) Where sub-paragraph (1) applies to extend the period for which a company (“company A”) is treated as having held any shares, that company shall be treated for the purposes of this Part as having had at any time the same entitlement—

(a) to shares, and

(b) to any rights enjoyed by virtue of holding shares,

Defined in Sch.7AC para.10(3) · see it in the full Act

(a) a company (“company A”) disposes of an asset by way of a material transaction, and

Defined in s.19(6) · see it in the full Act
company B

(c) the disposal by company A is to a person who is connected with another company (“company B”) which at some time after 19th March 1985 disposed of the asset by way of an inter-group transfer, and

Defined in s.19(6) · see it in the full Act

Cases considering section 136 5

De Sena & Anor v Notaro & Ors

[2020] EWHC 1031 (Ch) · 1 May 2020Interprets

The court rejected the submission that the statutory concept of a scheme of reconstruction required the demerging companies to be mirror images or prevented different classes of assets being allocated to different sides. The legislation did not require a different basis of valuation. (see paras [167]-[168])

Mehjoo v Harben Barker (A Firm) & Anor

[2013] EWHC 1500 (QB) · 5 June 2013

Provides corresponding no-disposal treatment for certain company reconstruction transactions involving shares or debentures. The court considered its application to the co-shareholder’s consideration and found no proven adverse tax effect. (see paras [431]–[450])

Delinian Limited v The Commissioners for HMRC

[2023] EWCA Civ 1281 · 3 November 2023

The judgment confirms that section 136 is subject to the same section 137(1) restriction as section 135. It was not independently determinative of the appeal. (see paras [23]-[24]; [49])

What each judgment says about section 136 is in the case-law panel in the full Act.

Amendments and notes

8 notes from legislation.gov.uk

Amendments

  1. F716S. 136 substituted (with effect in accordance with Sch. 9 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 2
  2. F717Words in s. 136(6) substituted (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(3)(6) (with s. 37(7))

Modifications

  1. C226Ss. 135, 136 excluded (with effect in accordance with s. 63(4) of the amending Act) by Finance Act 2000 (c. 17), Sch. 15 para. 82 (with s. 84)
  2. C227Ss. 135, 136 excluded by Income and Corporation Taxes Act 1988 (c. 1), s. 757 (as amended (with effect in accordance with Sch. 9 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 4(5))
  3. C230S. 136 applied (24.7.2002) by Finance Act 2002 (c. 23), Sch. 29 para. 84(1)
  4. C231S. 136 applied by Income and Corporation Taxes Act 1988 (c. 1), s. 842 (as amended (with effect in accordance with Sch. 9 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 4(7))
  5. C232S. 136 restricted by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), reg. 85Y (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by S.I. 2010/294, regs. 1(1), 21)
  6. C233S. 136 excluded by Offshore Funds (Tax) Regulation 2009 (S.I. 2009/3001), reg. 36A(2)(d) (as substituted (8.6.2013) by S.I. 2013/1400, regs. 1(1), 15(a) (with reg. 1(2)))