Takeovers and reconstructions Flashcards
What is it
Where Co A takes over Co B
Co A acquires shares of Co B
SH’s in Co B may recieve consideration in form of
Shares
Loan stock
Cash
Tax treatment of - exchange shares for same class
New shares take on cost and acq date of old shares (stand in shoes)
No gain arises until new shares disposed of
Tax treatment - exchange for diff class of shares
i.e. ordinary for preference
Cost of original shares apportioned to new by reference of relative MV of new shares
For new quoted shares - use relative MV at date of exchnage
For new unquoted shares - relative MV at date of first disposal
no gain until new shares disposed of
Receipt of shares and cash
cost of original shares apportioned
if cash 5% or less of value of total consideration, or is £3k or less then:
- No gain
- Cash received is deducted from base cost of shares
otherwise a gain must be computed on part disposal of the shares in respect of the cash element of consideration
Receipt of loan stock
If loan stock is QCB
- cost of OG shares apportioned between components of consideration receieved based on relative MV
- GAIN arises on loan stock but is DEFERRED
- On crystallisation, deferred gain will not qualify for BADR, irrespective of status of OG shares
-Disposal of QCB is exempt for CGT for individual
If loan stock is not a QCB, it is treated the same was as shares
What is a QCB
Sterling denominated
Non-convertible
Loan stock representing a normal commercial loan
Interest upon which is neither excessive nor dependant on business performance
For a company QCB is LR credit
Table for mixed consideration takeover
MV consid cost of og shares
MV of new shares A E x A/D
MV loan stock B E x B/D
Cash C E x C/D
Total D E
Disapplication of P4P
Individual can make claim to disapply p4p on takeover
giving rise to gain on takeover
Co A shares will have cost = MV at takeover
WHY?
if old shares in co B would have been entitled to BADR, but disposal of new shares in A wouldnt
Disapplication of deferral on receipt of QCB consideration
if shares exchanged for QCBs qualify for BADR, then this will be lost if gain deferred until disposal of QCB
An election can be made not to defer
If election is made, whole gain is chargeable at time of takeover at the BADR rate if shares disposed of meet conditions
