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HMRC internal manual

Capital Gains Manual

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Reorganisations of share capital: apportionment of cost: analysis of statute

TCGA92/S130 provides that the cost of the new holding shall be apportioned

`…by reference to market value on the first day (whether that day fell before the reorganisation took effect or later) on which market values or prices were quoted or published for the shares, debentures or rights as mentioned in subsection (1)(a) or (1)(b) above’…

Even without the words in brackets there is some difficulty in construing this section. For example, a company whose Ordinary shares have been quoted for many years may make a bonus issue of a new and different class of unquoted share. Section 130 applies but the cost of the new holding cannot be apportioned by reference to the first day on which the Ordinary shares were quoted as the new shares did not exist then.

The reference to ‘shares, debentures or rights as mentioned in subsection (1)(a) or (1)(b) above’ is a reference to the shares in the new holding. TCGA92/S130 is concerned with the apportionment of the total cost of the new holding. The new holding does not exist until after the reorganisation. Therefore, the ‘first day’ cannot predate the point at which the quoted market values of the shares and debentures in the holding reflect the effects of the reorganisation. This will usually be the ‘ex day’ as shown in Interactive Data (Extel).

The proviso ‘whether that day fell before the reorganisation took effect or later’ is needed because there is a statutory definition in Section 130(3) of the date on which the reorganisation takes effect, see CG52000. It is possible that this day will be after the first day on which any of the shares included in the new holding are quoted. These words in brackets make it clear that you make the apportionment by reference to market value on the first day market values are quoted and not on the statutorily defined date on which the reorganisation is deemed to take place.