IFM16230 - Scheme of reconstruction involving issue of units

Section 103H Taxation of Chargeable Gains Act 1992 (TCGA)

This section applies where investors in CIS鈥橝鈥� exchange units for new units in CIS 鈥橞鈥� where 鈥楤鈥� is a successor or feeder fund to 鈥楢鈥�. Two conditions must be satisfied:

  • In connection with a scheme of reconstruction, all investors in 鈥橝鈥� 鈥� or all investors holding units of a particular class 鈥� enter an arrangement, and
  • Under that arrangement, units in 鈥楤鈥� are issued to those investors in proportion to their holding in 鈥楢鈥�. The 鈥楢鈥� units may be retained by the investors, or they may be cancelled or otherwise extinguished.

If this section applies:

  • Investors are treated as having replaced their 鈥楢鈥� units with their holding at the conclusion of the arrangement (either 鈥楤鈥� units or a mixture of 鈥楢鈥� and 鈥楤鈥� units) and the 鈥楢鈥� units are treated as having been cancelled (even if they are actually retained).
  • Chargeable gains rules apply as if schemes 鈥楢鈥� and 鈥楤鈥� were a single company which had reorganised its share capital - see CG51700C. In summary, the exchange of units in 鈥楢鈥� for units in B鈥� is treated as not a disposal for chargeable gains purposes and the 鈥楤鈥� units are treated as having been acquired at the same time as the original 鈥楢鈥� units.

Where an interest in units in a non-reporting offshore fund is exchanged or treated as exchanged for an asset which is not an interest in a non-reporting offshore fund, there is a disposal of the interests in the non-reporting offshore fund for a consideration equal to their market value at the time of the exchange. See IFM13284 (corporation tax payers) and IFM13386 & IFM13388 (income tax payers).

Where a reorganisation in terms of case 2 of section 103F (see IFM16210) takes place in advance of the reconstruction, the provisions of section 103H apply to the position after the reorganisation.

Section 103H only applies where the arrangements take place for bona fide commercial reasons and not for the avoidance of tax鈥� see IFM16260.

鈥楽cheme of reconstruction鈥� and 鈥榝eeder fund鈥� are defined in Schedule 5AZA to TCGA 鈥� see IFM16250.