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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of shares and securities

Hamid owns 10,000 shares in Target Ltd, which cost him £20,000. Bidco Ltd takes over Target in a transaction that qualifies for share-for-share exchange treatment. Hamid receives 5,000 Bidco shares worth £60,000 and £20,000 in cash. What chargeable gain arises on Hamid at the time of the takeover, before the annual exempt amount?

The gain is £15,000. The cash element is a part disposal, with cost apportioned 20,000/80,000 of £20,000, which is £5,000. Deducting this from the £20,000 cash gives £15,000. The gain on the Bidco shares element is rolled over, so it is not taxed at the takeover.

  1. A£5,000
  2. B£0
  3. C£20,000
  4. D£15,000Correct

Explanation

The cash is not small, so it is a part disposal. Cost allocated to the cash is A/(A+B) × £20,000 = 20,000/80,000 × £20,000 = £5,000. The gain is £20,000 − £5,000 = £15,000. The gain on the share element, £60,000 − £15,000 = £45,000, is rolled over into the Bidco shares. £5,000 results from using the share fraction of cost, and £20,000 ignores cost.

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