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Taxation (UK) · Gains and losses on the disposal of shares and securities

Share for Share Exchange and Takeovers in CGT

Updated 11 October 2026 · Fact-checked

In a takeover or reorganisation, shares are exchanged for new shares or securities. If you receive only shares, no gain arises now. The new shares take over the old base cost and acquisition date. If you also get cash, you pay tax on a part disposal. Work out the gain using A ÷ (A + B).

Understand Takeovers and Reorganisations of Share Capital

A takeover happens when one company buys another and pays the shareholders with its own shares, or loan stock, or cash, or a mix. A reorganisation is when a company changes its share capital, for example swapping several classes of shares for one class.

If you would be taxed on the exchange, you would owe tax without receiving any cash. So the rules give rollover treatment. You are treated as not disposing of your old shares. The new shares are treated as the same asset as the old ones. They take your original cost and your original acquisition date. The gain is not removed. It is held back until you sell the new shares.

The relief normally applies where the new company ends up with more than 25% of the old company's ordinary share capital, or gains control, or the deal is a general offer, and the exchange is for genuine commercial reasons rather than tax avoidance. In TX-UK questions, assume the conditions are met unless told otherwise.

If you receive shares plus cash, you have a part disposal. You pay tax now on a slice of the original cost and proceeds, based on the cash received. The rest of the cost rolls into the new shares. If the cash is small, there are special rules, but they are not usually tested. Treat any cash as a part disposal.

If you receive qualifying corporate bonds (QCBs) as part of the deal, the gain on the old shares is calculated and frozen. It becomes chargeable when the bonds are later disposed of. Ordinary loan stock that is not a QCB is treated like shares. Only the form of the consideration decides the treatment.

Key rules to remember

Share for share exchange, shares only
No disposal. New shares cost = old shares cost. Acquisition date = old date.
Applies when the conditions for the relief are met. The gain is deferred, not removed.
Part disposal where cash is received
Cost allocated to cash = Total cost × A ÷ (A + B)
A = cash received. B = market value of the new shares at the date of the exchange. Gain now = A − allocated cost.
Cost carried into new shares
Cost of new shares = Total cost − cost allocated to cash
The new shares keep the original acquisition date.
Gain now (cash element)
Gain = A − Total cost × A ÷ (A + B)
Use the annual exempt amount of £3,000 against total gains of the year. Rates are 18% and 24%.
Qualifying corporate bonds received
Gain on old shares calculated at exchange, using market value of QCBs as proceeds. Gain is deferred until the QCBs are sold.
The gain is frozen at the exchange date. It is taxed when the bonds are disposed of, in that later year.

How to solve Takeovers and Reorganisations of Share Capital questions

Use this method for any takeover or reorganisation question for an individual.

  1. 1Identify the consideration: new shares, ordinary loan stock, qualifying corporate bonds, cash, or a mix.
  2. 2Check the relief applies: general offer or control or more than 25% holding, commercial reasons. Assume yes unless told.
  3. 3If it is shares only, state that there is no disposal. Carry forward the old cost and date.
  4. 4If cash is received, find A (cash) and B (market value of the new shares at the exchange date).
  5. 5Compute the allocated cost: total cost × A ÷ (A + B). Then the gain = A − allocated cost.
  6. 6Deduct any incidental costs of disposal in the part disposal, then apply losses and the £3,000 annual exempt amount.
  7. 7Record the base cost of the new shares: total cost less the cost allocated to cash. Keep the old acquisition date.
  8. 8Apply the CGT rate: 18% or 24% depending on remaining basic rate band. Business asset disposal relief (14%) only if the conditions are met.

Quickest way: Cash fraction shortcut

When to use it: Use this for a share exchange with some cash, when time is short.

  1. Write A and B. Work out the fraction A ÷ (A + B) first.
  2. Multiply the total cost by the fraction. Subtract from A to get the gain.
  3. Subtract the allocated cost from the total cost to get the new shares' base cost.
  4. Check: the allocated cost plus the new base cost must equal the original cost.

Common mistakes in Takeovers and Reorganisations of Share Capital

  • Taxing the whole exchange as a disposal when only shares are received.

    Students treat every swap as a sale at market value.

    Fix: Shares for shares means no disposal. Carry forward the old cost and date.

  • Using the wrong B in the fraction.

    Students use the old shares' value or the original cost.

    Fix: B is the market value of the new shares received at the date of exchange.

  • Taxing the full gain when cash is received.

    Cash makes the exchange look like a sale of everything.

    Fix: Only the cash part is a disposal. Use A ÷ (A + B) for the cost and roll the rest.

  • Giving the new shares a new acquisition date.

    Students assume new shares are acquired on the takeover date.

    Fix: The new shares take the old shares' date. This matters for share matching.

  • Treating qualifying corporate bonds like ordinary shares.

    The word loan stock or bond looks similar to shares.

    Fix: QCBs are outside rollover. Compute the gain at exchange and defer it until the bonds are sold.

  • Forgetting the annual exempt amount or applying it twice.

    Students rush the final tax step.

    Fix: Deduct £3,000 once from the total net gains of the tax year, then apply the rates.

Worked examples

Example 1

Anna bought 5,000 shares in Zed Ltd in May 2016 for £20,000. In August 2025 Yarn plc took over Zed Ltd in a general offer. Anna received 2 Yarn plc ordinary shares for each Zed Ltd share held. The Yarn shares were worth £6 each at the date of exchange. She received no cash. Compute her gain on the takeover and the base cost of her new shares.

Show the solution
  1. Consideration is shares only, so rollover applies. There is no disposal.
  2. Number of new shares = 5,000 × 2 = 10,000 Yarn plc shares.
  3. Market value of the new shares = 10,000 × £6 = £60,000. This is not used for a gain calculation here.
  4. Base cost of the new shares = £20,000, the original cost of the Zed shares.
  5. Acquisition date = May 2016.

Answer: No gain arises in 2025–26. The 10,000 Yarn plc shares have a base cost of £20,000 and are treated as acquired in May 2016.

Example 2

Ben bought 10,000 shares in Kay Ltd in June 2017 for £30,000. In 2025–26 Lux plc took over Kay Ltd in a general offer. Ben received £12,000 in cash and new Lux plc shares worth £48,000 at the exchange date. He has no other gains in the year. His taxable income uses up the basic rate band, so he pays CGT at 24%. Compute the CGT payable and the base cost of the Lux shares.

Show the solution
  1. Shares plus cash, so a part disposal arises on the cash element. A = £12,000. B = £48,000.
  2. Fraction = 12,000 ÷ (12,000 + 48,000) = 12,000 ÷ 60,000 = 1/5.
  3. Cost allocated to cash = £30,000 × 1/5 = £6,000.
  4. Gain = £12,000 − £6,000 = £6,000.
  5. Less annual exempt amount £3,000 = taxable gain £3,000.
  6. CGT at 24% = £3,000 × 24% = £720.
  7. Base cost of the Lux shares = £30,000 − £6,000 = £24,000. Acquisition date June 2017.

Answer: CGT payable is £720. The Lux plc shares have a base cost of £24,000 and are treated as acquired in June 2017.

Exam tips

  • Read the consideration line first. Shares only means no tax now. Cash means part disposal. QCBs mean a frozen gain.
  • Set out A, B and the fraction on separate lines. Marks are given for each step even if a figure is wrong.
  • State the rollover rule in one sentence. The examiner rewards the conclusion, such as no disposal and original date retained.
  • Link the topic to share matching. Because the new shares keep the old date, they may be matched with other shares acquired on the same date, in the same-day, 30-day and Section 104 pool rules.
  • In objective test questions, check which figure is asked for: gain now, base cost of the new shares or tax payable. Each uses a different step.

Practice questions from Gains and losses on the disposal of shares and securities

Takeovers and Reorganisations of Share Capital in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Takeovers and Reorganisations of Share Capital: frequently asked questions

What is a share for share exchange for CGT?

It is where you swap your shares in one company for shares in another, usually in a takeover. If the conditions are met, you are treated as not disposing of the old shares. The new shares take over the old cost and date.

How do you calculate the gain when cash is received in a takeover?

Treat it as a part disposal of the original shares. Cost allocated to cash is total cost × A ÷ (A + B), where A is the cash and B is the market value of the new shares. The gain is the cash less that allocated cost.

Do the new shares have a new acquisition date?

No. They are treated as the same asset as the old shares, so they keep the original acquisition date and cost. This matters for the share matching rules.

What happens if I receive qualifying corporate bonds?

Rollover does not apply to the bonds. The gain on the old shares is calculated at the exchange date using the market value of the bonds. It is not taxed then, but it becomes chargeable when the bonds are disposed of.