Topic 6 - Capital Gains Tax - Shares and securities Flashcards
State exempt shares and securities
Listed government securities
Qualifying corporate bonds (QCB)
Shares held in an individual savings account (ISA)
What’s the definition of a QCB
- Represents a normal commercial loan
- In sterling
- Issued, or acquired, after 13 March 1984
- Cannot be converted to shares.
How do you value shares?
- For unconnected parties
- If gifted or transferred to a connected party
- For unconnected parties = Actual Proceeds
- Market Value if Gifted or Transferred to a connected party.
Market Value = mid price
(Lowest quoted price + Highest quoted price) / 2
Define a bonus issue
Free shares are given to existing shareholders only in proportion to their existing shareholdings
Define Rights issue
Offer of new shares to existing shareholders only, in proportion to their own shareholding, usually at a discount.
What is the tax treatment for sale of rights nil paid if the sale proceeds are > 5% of the value on which the rights are offered and > £3,000?
If SP received are > 5% of value of shares on right the rights are offered:
AND > £3000
This forms the normal part of a disposal calculation:
Cost = Cash received / MV of shares (inc rights) x cost of original shares.
What is a sale of rights nil paid?
Where a share holder doesn’t take up the rights to purchase the shares offered in a rights issue but sells the right to buy those shares to another person
What is the tax treatment for sale of rights nil paid if the sale proceeds are < 5% of the value on which the rights are offered OR < £3,000?
No chargeable disposal at that time.
Sale Proceeds are deducted from the cost of the original shares (Deferred gain)
When would a take over occur?
A take over occurs when one company acquires the shares in another company either in exchange for shares in itself (share for share exchange), cash, or both.
What are the tax implications on a takeover when its for the below?
shares
Cash
Share for Share
No CGT will arise. Cost of original shares become cost of new shares.
- If more than one type received cost is apportioned based on MV of replacement shares:
- Quoted shares - on 1st day of quotation
- Unquoted - At the 1st disposal of the shares
What are the conditions of NG NL of share for share consideration?
Conditions
- Company A obtains more that 25% of Company B’s OSC; or
- General offer to members of Co. B to give co. A control if accepted
- Co. A can exercise > 50% of voting power in Co. B
- Exchange is for Bona Fide commercial reason
- Exchange is not part of a scheme or arrangement to avoid CGT.
What are the tax implications on a takeover when its for the below?
Cash
Shares for Cash
If < 5% of total value of consideration OR < £3,000, no CGT - just deduct proceeds from base cost of shareholding.
Proceeds = cash received.
Cost = Cost of original shares x Cash received/ Total Consideration.
What are the tax implications on a takeover when its for the below?
QCB
At the date of takeover, a chargeable gain is calc’d as if the value of debentures = cash
- Gain is not taxed - it is FROZEN
- Gain becomes chargeable when debenture sold.
- No gain on the actual sale of the QCB as exempt!
- Planning - can dispose of debentures in stages to utilised AEA/Losses to ensure no CGT payable.
When would BADR be available?
On future disposals of replacement shares if the conditions are met.
If not available, may be beneficial to disapply for share exchange rules.
What are the conditions of BADR?
Qualifying disposals:
- All or substantial part of sole trader/partnership business
- Assets of sole trader/partnership business following cessation (< 3 years)
- Shares in a personal company
- Own >5% AND Employee full or part time
