Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Takeovers
  • Cash consideration
  • Wholly in cash
  • Cash plus new securities
  • Capital loss
  • Earn-outs and deferred consideration
  • Share-for-share exchanges
  • Reporting
  • Interaction with business asset disposal relief (known as entrepreneurs’ relief prior to 6 April 2020)
  • Exchanges for other securities
  • More...


When one company acquires control of another company, this is called a takeover. This guidance note considers the capital gains tax (CGT) implications for shareholders of the company being taken over.

The consideration paid by a purchasing company to the shareholder(s) for their shares in a target company could be either:

  1. wholly in cash

  2. new securities in the vendor in exchange for shares in the target company (a ‘share-for-share exchange’), or

  3. a mixture of cash plus new securities

Cash consideration

A chargeable gain or allowable loss will arise if all or part of the consideration given to the vendor on a takeover involves cash.

Wholly in cash

If the old shares are exchanged for cash, this is a disposal of all of the original shares and a gain or loss will arise. This is calculated in the normal way using the share matching rules. For guidance on calculating the gain on share disposals, see the Shares guidance note.

Cash plus new securities

If the old shares are exchanged for a mixture of new securities plus cash, this is a part disposal for CGT. A gain or loss will arise on the cash element, but not on the securities element (as long as the share-for-share rules are not disapplied, see below). Wherever a part disposal arises, the allowable cost that can be deducted from the cash proceeds is calculated by using the formula:

‘A’ is the cash received on the takeover
‘B’ is the market value of the new securities received
'MV82' is the market value as at 31 March 1982 and is used instead of cost if the shares were acquired prior to that date
TCGA 1992, s 42

See Example 1.

Capital loss

If a capital loss arises on the cash element, it should be considered whether the disposal meets the conditions to set the loss against the shareholder's income. This is discussed in the Losses on shares set against income guidance note.

Earn-outs and deferred consideration

As well as cash and shares, in some

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