Revenue Note for Guidance

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Revenue Note for Guidance

Schedule 16

[Section 703]

Building Societies: Change of Status


This Schedule, which is applied by section 703, ensures neutral tax consequences on a conversion of a building society into a company. This is provided separately for capital allowances, financial assets, capital gains on assets vested in the successor company and capital gains in the case of members of the society.

Capital allowances

par 1 For capital allowances purposes, the trade of the building society is not regarded as having ceased. If the conversion of the society into a company was regarded as a cessation, a balancing allowance or charge would crystallise. The new company gets the capital allowances and charges that the society would have got if it had continued to carry on the trade. This includes the crystallisation of deferred balancing charges which first arose before the conversion. Finally, the conversion itself does not give rise to balancing allowance or charge.

Financial assets

par 2 On the conversion of the society the financial trading stock of the society (financial assets which are trading stock) is to be valued at its cost to the society. This means that the society will not become liable to tax on any unrealised profits on that stock. The vesting of the financial assets of the society (assets held to satisfy liquidity requirements) in the successor company is not regarded as a disposal by the society. However, the profit arising to the successor company when it disposes of these assets will be calculated for tax purposes by comparing their sale proceeds with the cost of the assets to the building society.

Capital gains: assets vested in the successor company, etc

par 3 The conversion is not treated as a disposal by the society, or as an acquisition by the successor company, of any assets which on conversion are vested in the successor company. For capital gains tax purposes, the successor company is treated as having acquired the assets at the time and for the consideration at which they were acquired by the building society and as having done all things done by the building society before the conversion. This ensures that unrelieved capital losses may be brought forward and that capital gains deferred by the society under the replacement of business assets provisions will not crystallise on the conversion.

Capital gains: shares, and rights to shares, in successor company

par 4(1) For the purposes of this paragraph —

free shares” are shares issued for no new consideration;

member” means a person who is or was a member of the society and includes a member of any class or description;

new consideration” does not include any amount paid out of the assets of the society or out of rights in the new company.

par 4(2) A right of a member of a building society to acquire shares in the successor company is treated for capital gains tax as an option. This applies where the right is to receive shares free or for less than their market value, or if the member is entitled to these shares in priority to other members. The effect of treating the acquisition of the right as an option is to ignore that transaction for tax purposes and to treat the acquisition of the right and the acquisition of the shares when the right is exercised as a single transaction.

par 4(3) Where a member of a building society receives shares in the successor company, the cost for capital gains tax purposes is restricted to the amount of any new consideration paid by the person. The value of the shares on acquisition is to be taken to be the amount of any new consideration given. This ensures that on disposal of the shares, the gain is computed by reference to the actual amount (if any) paid for the shares. Where shares are acquired by the member pursuant to a right to acquire them either at less than market value or in priority to others, no part of the cost of the shares to the person can be attributed to the acquisition of the rights.

par 4(4) & (5) Where the shares are issued to a trustee for transfer to the members of the society for no new consideration, and the shares are to be held in trust by the trustees, then —

  • the shares are regarded as having been acquired by the trustees for no consideration,
  • the members’ interest in the settled property is regarded as having been acquired at no cost and having no value at the time of acquisition, and
  • when a member becomes absolutely entitled to shares as against the trustees the trustees are treated as disposing of the shares at a price that results in no gain/no loss and as re-acquiring the shares at that time as nominee of the member (that is, section 576(1) which provides that a chargeable gain would otherwise arise does not apply).

par 4(6) These provisions apply to a person becoming absolutely entitled as against the trustees even if that person, being a minor or for any other legal disability, might not in general law become so entitled.

par 4(7) Where a building society demutualises it is required to make a return to the Revenue Commissioners setting out in respect of each of its members

  • the name, address and PPS Number of the member,
  • the number of shares in the successor company which the member has a right to acquire,
  • the amount of new consideration which the member is required to give for those shares,
  • the value of any assets of the society to which the member has a right, and
  • such other information which the Revenue Commissioners may require.

In order to be able to supply the PPS Number of each member the society is required to request it from the member before the demutualisation.

Relevant Date: Finance Act 2021