CG51981 - Reorganisations of share capital: creation of separate holdings: example using section 130

This example illustrates the operation of TCGA92/S130 if the original shares are in a Section 104 holding.

• May 2022: a taxpayer buys 8,000 25p Ordinary shares in L PLC at a price of 160p per share. Total cost £12,800.
• December 2023: L PLC makes a 5:8 rights issue of 50p Convertible Redeemable Preference shares at 100p per share payable on 3 January 2024. Total shares acquired 5,000. Total cost £5,000.

The market value of the two classes of share on 13 December 2023, the first day prices are quoted for the shares in the new holding, is

25p Ordinary shares	135p
50p Convertible Redeemable Pref. shares	100.25p per share (100p plus a premium of
	0.25p per share)

These values are used to apportion the total cost of the new holding (£12,800 + £5,000 = £17,800) between the two different classes of share:

The pool of 8,000 25p Ordinary shares

The total cost attributed to the pooled Ordinary shares is

£17,800 x [market value of 8,000 25p Ordinary shares / (market value of 8,000 25p Ordinary shares plus market value of 5,000 50p Preference shares)] ie

£17,800 x (8,000 x £1.35) / [(8,000 x £1.35) + (5,000 x £1.0025)] = £12,157

The pool of 5,000 50p Preference shares

The total cost attributed to the pooled Preference shares is

£17,800 x [market value of 5,000 50p Preference shares / (market value of 8,000 25p Ordinary shares plus market value of 5,000 50p Preference shares)] ie

£17,800 x (5,000 x £1.0025) / [(8,000 x £1.35) + (5,000 x £1.0025)] = £5,643