Chapter 21 - CGT - Shares and securities

Question 1

All shares are subject to capital gains tax except for:

Answer 1

• Listed government securities (gilt-edged securities or gilts) - Qualifying corporate bonds (e.g. company loan notes) - Shares held in an Individual Savings Account (ISA)

Question 2

What is the definition of a qualifying corporate bond (four points)

Answer 2

• Represents a normal commercial loan - Is expressed in sterling - Was issued after 13 March 1984, or was acquired by the disposer after that date - It cannot be converted to shares

Question 3

What is the formula to work out the value of a share

Answer 3

(Lowest quoted price + Highest quoted price) / 2

Question 4

What is step 1 of the matching principle?

Answer 4

Step 1: Matching principle - Same day as the date of disposal - Within the following 30 days - The share pool

Question 5

What is step 2 of the matching principle?

Answer 5

Sale proceed X Less: selling costs (X) Less: cost of shares (X) Chargeable gain X

Question 6

What involves the exchange of existing shares in a company for other shares of another class in the same company.

Answer 6

Reorganisation

Question 7

When does a takeover occur?

Answer 7

A takeover occurs when one company acquires the shares in another company either in exchange for shares itself, cash or a mixture of the two.

Question 8

What are the two rules for Shares for shares

Answer 8

• No Capital Gains Tax (CGT)
• Cost of the original shares becomes the cost of the new shares