IFM16250 - Meaning of scheme of reconstruction

Schedule 5AZA to Taxation of Chargeable Gains Act 1992 (TCGA)

This Schedule defines scheme of reconstruction for the purposes of sections 103H and 103I TCGA. There are two conditions.

First condition

The reconstruction must involve the issue of units in a collective investment scheme or schemes, or a feeder fund in one of the following circumstances:

  • Where there is one original collective investment scheme, the issue of units only to investors generally or to investors holding a particular class of units.
  • Where there is more than one original collective investment scheme, the issue of units only to investors generally or to investors within a particular class of units.
  • And the scheme does not involve the issue of units in any successor collective investment schemes or feeder fund to anyone else

A feeder fund is a collective investment scheme where 85% or more of the property it owns is constituted by units in a successor collective investment scheme or schemes.

Second condition

Each Investor holding original units in the scheme or schemes must be entitled to the same rights to acquire units in the successor scheme or schemes as other investors holding such original units or holding a particular class of original units.

Further condition – preliminary exchanges of units

Where an exchange of units takes place under case 2 of section 103F(1) TCGA (see IFM16210) as a preliminary step to a scheme of arrangement, conditions 1 and 2 above apply to the collective investment scheme after the preliminary exchange has taken place.

Later issue of units disregarded

When applying conditions 1 and 2 above, no account should be taken of additional units issued by the successor fund or funds, or feeder fund, where the issue takes place after the scheme of arrangement has been completed.

For example, if new units are issued in return for new investment after the completion of a scheme of arrangement, the issue of those units should not be considered when applying conditions 1 and 2.