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 2005: a taxpayer buys 8,000 25p Ordinary shares in L PLC at a price of 160p per share. Total cost £12,800.
- December 2006: L PLC makes a 5:8 rights issue of 50p Convertible Redeemable Preference shares at 100p per share payable on 3 January 2007. Total shares acquired 5,000. Total cost £5,000.
Interactive Data (Extel) shows the market value of the two classes of share on 13 December 2006, the first day prices are quoted for the shares in the new holding, as
| 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
Where the original shares are listed in Interactive Data (formerly Extel), they will publish an adjustment factor for each class of share in the new holding. Say the factors for the above shares are 0.683 for the 25p Ordinary shares and 0.317 for the Preference shares. This means that the cost of the pooled 25p Ordinary shares within the new holding is 0.683 x total cost of the new holding and the cost of the pooled 50p Preference shares is 0.317 x total cost of the new holding. You can only use these adjustment factors if the taxpayer has taken up his or her full entitlement to the rights issue, as they have in this example.