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Autumn Statement 2022 – Change to Share for Share Exchange

This important change takes effect today

17 Nov 2022

Effective as of today, Jeremy Hunt introduced a change to the share for share exchange relief ordinarily provided from Capital Gains Tax. This is where shares in one entity are acquired in exchange for shares in the acquiring company.

The new rules deem securities or shares in a non-UK company that are acquired in exchange for securities in a UK company to be located in the UK for the purposes of CGT. This only applies where the UK company is a close company* and the non-UK company would be a close company if it was a UK company.

Individuals will then pay tax on gains or dividend income received in respect of the shares in the non-UK company, as if they were securities in a UK company.

Essentially this looks to capture the following scenario

  • An owner managed business sets up a UK company and establishes a successful business in the UK.
  • They subsequently bring in a non-UK company in the structure above the UK company as a parent/holding company.
  • The parent company could be used to extract profits in a lower tax jurisdiction by passing them up to the parent.

This new rule means that this will no longer be possible and profits extracted from the non-UK company would be taxed in the UK as if they were drawn from a UK company.

Similarly on disposal, the non-UK shares would be treated as if they were UK shares and the value attributed would be subject to UK Capital Gains Tax.

The aim is to ensure that where value has been built up in a UK business, the UK tax authorities collect the appropriate tax on that value.

Double tax treaties in place will need to be consulted for this arrangement as this may lead to taxation in the UK as well as in the other jurisdiction.

* Broadly speaking the term close company refers to a limited company with five or fewer ‘participators’, or a limited company of which all the ‘participators’ are also directors. Typically most small, limited companies, ‘participators’ means just shareholders

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