Taxation of Chargeable Gains Act 1992, section 137

Restriction on application of sections 135 and 136 : anti-avoidance

Part IV Shares, securities, options etc.

[F719 (1)This section applies in respect of arrangements relating to an exchange or scheme of reconstruction as regards which section 135 or 136 applies if the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid liability to capital gains tax or corporation tax.

(1A)Any such reduction or avoidance that would (in the absence of this section) arise from such arrangements is to be counteracted by the making of such adjustments as are just and reasonable (in light of the reduction or avoidance).

(1B)This includes, in an appropriate case, disapplying section 135 or 136 insofar as is required to counteract the reduction or avoidance.

(1C)Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of—

(a)an assessment, or

(b)the modification of an assessment.F719]

F720 (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F721 (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)If any tax assessed on a person (the chargeable person) by virtue of [F722this sectionF722] is not paid within 6 months from the date when it is payable, any other person who—

(a)holds all or any part of the shares or debentures that were issued to the chargeable person [F723as part of the exchange or scheme of reconstructionF723] , and

(b)has acquired them without there having been, since their acquisition by the chargeable person, any disposal of them not falling within section 58(1) or 171,

may, at any time within 2 years from the time when the tax became payable, be assessed and charged (in the name of the chargeable person) to all or, as the case may be, a corresponding part of the unpaid tax; and a person paying any amount of tax under this subsection shall be entitled to recover a sum of that amount from the chargeable person.

(5)With respect to chargeable gains accruing in chargeable periods ending after such day as the Treasury may by order appoint, in subsection (4) above—

(a) for the words “the date when it is payable" there shall be substituted “the date determined under subsection (4A) below” ;

(b) for the words “the time when the tax became payable" there shall be substituted “that date” ; and

(c) for the words “a sum" onwards there shall be substituted “from the chargeable person a sum equal to that amount together with any interest paid by him under section 87A of the Management Act on that amount” ;

and after that subsection there shall be inserted—

“(4A)The date referred to in subsection (4) above is whichever is the later of—

(a)the date when the tax becomes due and payable by the chargeable person; and

(b)the date when the assessment was made on the chargeable person.”

(6)In this section references to shares or debentures include references to any interests or options to which this Chapter applies by virtue of [F724section 135(5), 136(5)F724] or 147.

[F725 (7) In this section, “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). F725]

Definitions used in section 137 8

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
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
tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · 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
chargeable period

“chargeable period” means a year of assessment or an accounting period of a company for purposes of corporation tax;

Defined in s.288(1) · see it in the full Act
the option

(a) a share option (“the option”) has been granted to an individual—

(i) in accordance with the provisions of a Schedule 4 CSOP scheme, and

(ii) by reason of the individual’s office or employment as a director or employee of a company, and

(b) shares (“the relevant shares”) are acquired by the exercise of the option.

Defined in Sch.7D para.11(3) · see it in the full Act

Cases considering section 137 5

Delinian Limited v The Commissioners for HMRC

[2023] EWCA Civ 1281 · 3 November 2023Limits

The judgment construes section 137 as restricting the deferral available for share exchanges where the statutory commercial-purpose and tax-avoidance conditions are not met. (see paras [42]-[54]) The judgment interprets the provision as imposing separate commercial-purpose and tax-avoidance limbs. The relevant scheme or arrangements are considered as a whole, and eventual non-payment of otherwise due tax remains tax avoidance even if tax was initially deferred. (see paras [42]-[54]) Cited only.

The Commissioners for HMRC v Euromoney Institutional Investor Plc

[2022] UKUT 205 (TCC) · 29 July 2022Interprets

The second limb requires factual determination of the scheme or arrangements of which the exchange forms part and whether tax avoidance is a main purpose of the arrangements as a whole. It prescribes no additional candidate-scheme methodology or isolated focus on a component step. (see paras [32]; [43]-[44]; [52]-[54])

Mehjoo v Harben Barker (A Firm) & Anor

[2013] EWHC 1500 (QB) · 5 June 2013Limits

Limits the reconstruction provisions where the exchange is not for bona fide commercial purposes or forms part of arrangements having a main purpose of avoiding capital gains tax or corporation tax. The court held that the arm’s-length sale was commercial and that the proposed planning would not establish an adverse effect on the co-shareholder. (see paras [434]–[450])

What each judgment says about section 137 is in the case-law panel in the full Act.

Amendments and notes

11 notes from legislation.gov.uk

Amendments

  1. F718Word in s. 137 heading inserted (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(4)(a)(6) (with s. 37(7))
  2. F719S. 137(1)-(1C) substituted for s. 137(1) (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(4)(b)(6) (with s. 37(7))
  3. F720S. 137(2) omitted (with effect in accordance with s. 37(6) of the amending Act) by virtue of Finance Act 2026 (c. 11), s. 37(4)(c)(6) (with s. 37(7))
  4. F721S. 137(3) omitted (with effect in accordance with s. 37(6) of the amending Act) by virtue of Finance Act 2026 (c. 11), s. 37(4)(c)(6) (with s. 37(7))
  5. F722Words in s. 137(4) substituted (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(4)(d)(i)(6) (with s. 37(7))
  6. F723Words in s. 137(4)(a) inserted (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(4)(d)(ii)(6) (with s. 37(7))
  7. F724Words in s. 137(6) substituted (with effect in accordance with Sch. 9 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 5(5)(b)
  8. F725S. 137(7) inserted (with effect in accordance with s. 37(6) of the amending Act) by Finance Act 2026 (c. 11), s. 37(4)(e)(6) (with s. 37(7))

Modifications

  1. C234S. 137 applied by The Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964), reg. 69Z24H (as inserted (1.8.2012) by S.I. 2012/1783, regs. 1, 4)
  2. C235S. 137(1) modified (with effect in accordance with s. 1329(1) of the affecting Act) by Corporation Tax Act 2009 (c. 4), ss. 129(7), 1329(1) (with Sch. 2 Pts. 1, 2)

Commencement

  1. I2S. 137(5):30.9.1993 appointed for the purposes of s. 137(5) by S.I. 1992/3066, art. 2(2)(d) in force at 30.9.1993 by S.I. 1992/3066, art. 2(2)(d)