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HMRC internal manual

Capital Gains Manual

Share exchange: effect of TCGA92/S135: other consideration received

The acquiring company may pay cash or give some other consideration as well as issuing shares and debentures. This should be treated as a capital distribution in respect of the original shares, see CG57810+, to which the provisions of TCGAQ92/S128 (3) apply, see CG51875. If the amount of cash is small compared with the value of the original shares the taxpayer may elect to have it treated as a small capital distribution, see CG57835.


  • January 2005 an individual buys 20,000 £1 ordinary shares in Dirty Denims Ltd at a cost of £3 per share.
  • February 2012 Elegant Evening Wear PLC makes a general offer to acquire all the shares in Dirty Denims Ltd in consideration for the payment of £4 cash and the issue of two Elegant Evening Wear PLC shares for each Dirty Denims Ltd share held. The individual accepts the offer on 1 March 2012.


  No. of Shares Pool of qualifying expenditure
Purchase 20,000 £60,000
Capital distribution   (£15,000)

The receipt of the cash on the takeover is treated as a capital distribution.

The market value of the Elegant Evening Wear PLC shares on 1 March 2012 was £6 per share.

Using consideration received the part disposal formula becomes

20,000 x £4 = 1
20,000 x £4 + (40,000 x £6)   4

Capital gains tax computation

Pool of qualifying expenditure £60,000 x 1/4 £15,000
Disposal proceeds 80,000
less Cost 15,000
Chargeable gain 65,000

The individual now has a new holding of 40,000 Elegant Evening Wear PLC shares.


No. of Shares Pool of qualifying expenditure
40,000 £45,000