Capital gains tax - share for share exchanges

The measure

Shares or other securities in a non-UK incorporated close company received in exchange for shares or other securities in a UK incorporated close company, which qualify for “paper for paper” treatment on the exchange, will now be deemed to have a UK situs for the purposes of income tax and capital gains tax. 

Where this deeming provision applies, income and gains arising in respect of the non-UK securities will be taxed in the same way as if they were situated in the UK. This means the remittance basis for non-UK domiciled individuals will not apply to income and gains from these securities. 

An election may be made to opt out of these provisions by treating the original exchange as a chargeable disposal of the UK securities.

Who will be affected?

Individuals who meet certain conditions including owning or controlling more than 5% of the ordinary share capital of a company and/or being able to receive more than 5% of the amounts distributed by the company or paid on a winding-up are potentially within the scope of this change. 

The legislation will apply to individuals who meet the aforementioned criteria in respect of a UK incorporated close company who exchange their securities for securities in an equivalent non-UK incorporated company (that would be a close company were it a UK company). 

This change is relevant in particular to UK resident and non-UK domiciled individuals since distributions received and gains realised in respect of foreign shares that are now deemed to have a UK situs will be taxable in the UK regardless of any remittance basis claim.

When will the measure come into effect?

The measure is proposed to be effective immediately and will thus apply to exchanges within the scope of the legislation that take place on or after 17 November 2022.