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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Reorganisations of share capital: apportionment of cost to partly paid shares

TCGA92/S128(1) provides that any consideration which a shareholder gives or becomes liable to give should be treated as consideration given for the original shares. Therefore, the cost of the new holding should include any amount the shareholder is liable to pay as well as the amount he or she actually pays. If the shareholder sells the new shares or debentures with the liability still attached you should add the amount of that liability to the disposal proceeds as otherwise the vendor would receive an effective deduction for the cost represented by the liability even though he or she would never have to pay it.

In practice you can extend this method of computation to any issue of partly paid shares, although strictly no liability will be incurred until the company actually calls for a further payment. The shares are thereby effectively treated as though they were fully paid.


  • May 2004 an individual buys 10,000 £1 ordinary shares in R Ltd, an unquoted company, for £10 per share.
  • June 2008 R Ltd makes a 2:1 rights issue of £10 preference shares of which £6 per share is payable on issue and £4 on the first anniversary of issue.
  • February 2009 an individual sells 8,000 preference shares at £9 per share with the liability to make the further payments still attached. Total proceeds £72,000.

In February 2009 the market values of the component parts of the new holding are

10,000 £1 Ordinary shares £12 per share
20,000 £10 Preference shares £9 per share

The total expenditure on the new holding is £100,000 plus £200,000 (ie it includes all the amounts the shareholder is liable to give under the rights issue). This £300,000 must be apportioned between the pools of Ordinary and Preference shares in the new holding by reference to market values at the time of the disposal, TCGA92/S129. But the amount of the future unpaid call, £4 per share, must be added to both the market value of, and the consideration received for, the Preference shares so the proportion of the total cost attributed to the Preference share pool is

Market value of 20,000 Preference shares / [(market value of 20,000 Pref. shares) + (market value of 10,000 Ordinary shares)] =

(20,000 x (£9 + £4))/[(20,000 x (£9 + £4)) + (10,000 x £12)] = 68.42%

The cost of the Preference share pool is 68.42% x £300,000 = £205,260

The proceeds are taken to be £104,000 (£72,000 plus the future unpaid call). The allowable cost of the shares disposed of will be determined using the part disposal rule because there is a part-disposal of the pool of Preference shares. The proportion of the total cost of the pool is

Consideration received/ [(consideration received) + (market value of the asset undisposed of)], or

£104,000 / [(£104,000) + (12,000 x £13)] = 40%

Note the consideration received and the market value of the residue are treated as including the unpaid call.

Capital gain computation

Consideration £104,000 (£72,000 + £32,000 unpaid future call)
Cost £82,104 (40% x £205,260)
Gain £21,896  

You should not use this method of computation if the customer objects or if it gives rise to a chargeable gain which exceeds the amount of the sale proceeds. This may happen if the current value of the shares is much greater than their original cost and a substantial part of the purchase money is unpaid. If you are using the strict statutory method of computation you must also treat the partly paid shares as a different class of share, see CG52041.

Disposals which took place before 6 April 2008 attracted indexation allowance, albeit in a ‘frozen’ amount if the disposal was after 5 April 1998. For Corporation Tax purposes indexation allowance continues to be due up to the month of disposal. Where the disposal was of partly-paid shares the computation differs from the method shown above.

If you need guidance in such cases, please refer to Specialist PT (CG Technical) Solihull.