Corporation Tax Act 2010 section 724A

Disregard of change in parent company

Section 724A provides that when a newly formed company acquires all the shares of an existing company through a straightforward share-for-share exchange, the resulting change in ownership is disregarded for the purposes of the change-of-ownership rules, provided certain conditions and continuity requirements are met.

• When a new company (N) acquires all the issued shares of an existing company (C) and obtains full voting power, entitlement to all distributable profits, and entitlement to all assets on a winding up, the change of ownership of C is disregarded — provided the continuity requirements are also satisfied.
• The continuity requirements ensure the acquisition is a genuine share-for-share exchange: the only consideration paid by N must be the issue of its own shares to C's shareholders, every former shareholder of C must become a shareholder of N, the share classes must mirror those that existed in C, and each shareholder must hold the same proportionate interest in N as they held in C.
• The section also applies where the acquisition is carried out through a scheme of reconstruction — that is, a court-approved compromise or arrangement under Part 26 or 26A of the Companies Act 2006 (or equivalent overseas legislation) — involving the cancellation of all shares in C and the issue of shares in N to C's former shareholders.
• A company qualifies as "new" for these purposes only if, before the acquisition, it has neither issued any shares other than subscriber shares nor begun to carry on any trade or business.