Where a shareholder exchanges shares (the old holding) for other shares and/or non-qualifying corporate bonds (the new holding) as part of a sale, reorganisation or reconstruction of a company, the shareholder is not treated as having made a disposal of the old holding for the purposes of the taxation of chargeable gains provided certain conditions are met.

Instead, the shareholder is treated as having acquired the new holding at the same time, and for the same consideration, as the old holding. Any new consideration given for the new holding is treated as having been given for the old holding (thereby increasing the amount of the consideration given for the old holding). When the new holding is sold, tax will be payable on any gain arising (subject to any available reliefs) (sections 126 to 138A, Taxation of Chargeable Gains Act 1992).

Share for share exchange relief will only apply if the exchange is for bona fide commercial reasons and is not part of a tax avoidance scheme. This is something on which clearance can be obtained from HMRC under an advance clearance procedure (see Practice note, Tax clearances: exchange of securities and reconstructions).