Incorporation relief share-issue dates can precede registration

Shares used for incorporation relief are not invariably treated as issued only when their allotment is registeredGOV. HMRC’s guidance now describes registration as the normal position and expressly directs advisers to the capital gains exceptions. This qualifies the previous unqualified statement about registration when considering whether shares have been issued for a business transfer.

The ordinary company-law position remains that shares are issued when the shareholder is entered in the company’s register of members. For capital gains purposes, however, section 288(5) treats shares comprised in a letter of allotment or similar instrument as issuedLegislation. That treatment does not apply where the right remains provisional until acceptance and no acceptance has occurred. HMRC explains that this rule can apply wherever the Taxation of Chargeable Gains Act requires consideration of when shares were issued.

Court rectification can also affect the date. HMRC says that, where a court retrospectively amends the register of members, that amendment determines the issue date for capital gains purposesGOV. Section 125 allows the person aggrieved, any company member or the company to apply to the court for rectification. That provision applies if the register omits information it must contain or includes information it is not required to contain. The court may refuse the application or order rectification; the guidance does not give a company an unrestricted ability to backdate its register.

For incorporation relief, the shares must still be issued as consideration for transferring the businessGOV. HMRC says that a separate share subscription does not satisfy that requirement. Nor does a later agreement to repay, through shares, cash consideration previously credited to a loan account. A balance left on the transferor’s loan or current account is treated as consideration other than shares, restricting relief.

HMRC also retains its guidance that section 162 sets no time limit by which the shares must be issued, while expecting issue fairly promptly once the reasons for delay disappear. The practical implication for advisers is to check the allotment terms and any relevant court order alongside the register when establishing the issue date, while checking that the shares form the transfer consideration.

The relevant provisions are sections 162 and 288(5) of the Taxation of Chargeable Gains Act 1992 and section 125 of the Companies Act 2006.