Commentary

D6.207 Share for share exchange—part share/debenture consideration

Corporate tax
Corporate tax | Commentary

D6.207 Share for share exchange—part share/debenture consideration

Corporate tax | Commentary

D6.207 Share for share exchange—part share/debenture consideration

If the consideration for the new holding is only partly shares or debentures, with the other part being, for example, cash, a corresponding proportion of the original shares or debentures will be treated as disposed of for the cash1, with the cash received being treated as a capital distribution in respect of the original shares2.

A capital distribution constitutes a part disposal, unless the amount received is 'small' (see below).

Consequently, the normal part disposal rules3 apply (see Division C2.4), meaning that the cost of acquisition of the part disposal is:

where:

  1.  

         A is the consideration received

  2.  

         B is the value of the new holding after the disposal, and

  3.  

         C is the allowable cost of the original holding

Example 1

H purchased 12,000 shares in J plc in May 2013 for £24,000. In 2018, L plc makes a takeover bid for J plc, offering 3 of its own shares for every 2 shares in J plc, plus 20p in cash per J plc share. The bid is successful, and H disposed of his J plc shares for the agreed offer price in March 2020 (ie cash of £2,400 plus a holding of L shares, the market value of which immediately after the disposal was £39,600).

££
Disposal proceeds2,400
Deduct: Allowable cost—
1,371
Gain£1,029

The L shares

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