751A Exchange of shares held as trading stock

Summary

This section is concerned with a financial trader who exchanges shares held as trading stock for other shares where the exchange is brought about by a takeover or merger involving the company which issued the shares held by the trader. Under the existing capital gains tax code such an exchange is not treated as giving rise to a capital gains tax liability. This liability is deferred until the replacement shares are disposed of.

This section provides a similar deferral of tax liability under the income tax and corporation tax codes which apply to financial traders.

Details

Definitions

(1) “new holding” is the new securities held after the exchange.

“original shares” is the shares held before the exchange.

Application

(2) Subsections (4) and (5) are applied solely to persons assessable on the profits of a trade of dealing in securities under Case I of Schedule D.

(3) The section is applied to the same kind of exchanges as sections 584 to 587 would apply if the person concerned was not assessable under Case I of Schedule D. These sections contain the comparable capital gains tax provisions. There is one exclusion namely the Exchange Programme in Irish Government bonds which is being initiated by the National Treasury Management Agency and which is taxed under special rules (section 751B).

Tax treatment

(4) In computing the profits assessable to tax under Case I of Schedule D —

• the exchange is not regarded as a disposal, and
• the original shares and new holding are treated as the same asset.

(5) This treatment is qualified in circumstances where cash or some other consideration may also change hands in addition to the share exchange. The proportion of the value of the total transaction which represents this consideration is considered a taxable receipt and only the balance is subject to the special rules.

(6) These rules are applied with the necessary modifications in the tax computation of the life fund of life assurance companies. There are specific rules associated with the taxation of life assurance companies. Their tax liability cannot, however, be less than the liability which would arise if they were chargeable to tax under Case I. This is known as the notional Case I computation. If such a situation were likely to arise, the taxable amount is adjusted by reducing the amount of management expenses of the company which are deductible. The purpose of this subsection is to ensure that in making the notional Case I computation the provisions of this section will apply.

Relevant Date: Finance Act 2021