CFM62400 - Foreign exchange: matching: bringing amounts back into account: shares exchanged for QCB

Disposals within TCGA92/S116(10)

Exchanges before 6 April 2010

Where there is an exchange of shares for an asset that is a qualifying corporate bond (QCB) TCGA92/S116 (10) deems there to be no disposal (see CG53822+).

Reg 9, SI2002/1970 applies instead so that the amount that would have been brought into charge under Reg 4 (CFM62300) is added to the market value of the bond for the purposes of the calculation in S116(10). If the amount that would have been brought into charge

  • is an exchange gain, it is added to the market value,
  • is an exchange loss, it is deducted from the market value, and
  • if the net loss is greater than the market value of the bond the excess is treated as a chargeable loss accruing to the company on disposal of the bond.

The amount is therefore brought into charge on a subsequent disposal of the QCB. S116 (10)(c) ensures that the exemption for chargeable gains on qualifying corporate bonds in TCGA92/S115 does not extend to chargeable amounts in S116 (10).

See CFM62410 for an example of how Reg 9 works.

See CFM62450 for an example of where an exchange of shares for a QCB takes place after a no-gain, no-loss disposal.

Exchanges on or after 6 April 2010

A new regulation 2(1A) of the EGLBAGL Regulations provides that an exchange of shares for a QCB, to which TCGA92/S116(10) applies, is treated as a disposal for the purposes of the Regulations - thus, for this limited purpose, over-riding the 鈥榥o disposal鈥� fiction imposed by S116(10).

This means that the normal provisions in regulation 4 (CFM62290) apply when you make the chargeable gains computation required by S116(10)(a). The amount treated as disposal consideration for the shares is increased by any 鈥榥et gain鈥� or reduced by any 鈥榥et loss鈥� (with any excess net loss being added to the acquisition cost). No special rule is needed to achieve this, so regulation 9 is omitted from the Regulations with effect from 6 April 2010.

As previously, the chargeable gain or allowable loss that has been computed will be brought into charge when the company disposes of the QCB.