Income and Corporation Taxes Act 1988

Capital receipts

4 (1) Money or money’s worth is not a capital receipt for the purposes of section 186(3) if or, as the case may be, to the extent that—

(a) it constitutes income in the hands of the recipient for the purposes of income tax; or

(b) it consists of the proceeds of a disposal falling within section 186(4); or

(c) it consists of new shares within the meaning of paragraph 5 below.

(2) If, pursuant to a direction given by or on behalf of the participant or any person in whom the beneficial interest in the participant’s shares is for the time being vested, the trustees—

(a) dispose of some of the rights arising under a rights issue, as defined in section 186(8), and

(b) use the proceeds of that disposal to exercise other such rights,

the money or money’s worth which constitutes the proceeds of that disposal is not a capital receipt for the purposes of section 186(3).

(3) If, apart from this sub-paragraph, the amount or value of a capital receipt would exceed the sum which, immediately before the entitlement to the receipt arose, was the locked-in value of the shares to which the receipt is referable, section 186(3) shall have effect as if the amount or value of the receipt were equal to that locked-in value.

(4) Section 186(3) does not apply in relation to a capital receipt if the entitlement to it arises after the death of the participant to whose shares it is referable.