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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Conversion of securities: compensation stock: rebasing

If the nationalisation occurred before 31 March 1982 the taxpayer can claim relief under TCGA92/SCH4/PARA4 if the gain is released by a disposal of the gilts after 6 April 1988, see CG16980. The held over gain is reduced by one half.

EXAMPLE

  • 1970 Mr Mooney inherits 20,000 shares in Monarch Ships Ltd at an agreed value of £3 per share.
  • 1977 Monarch Ships Ltd is nationalised. Compensation is agreed at £4 per share. This is satisfied by an issue of gilts at below par. Mr Mooney received gilts with a nominal value of £84,000.
  • 1990 Mr Mooney transfers gilts with a nominal value£30,000 to his wife.
  • 1991 Mr Mooney and his wife both dispose of their entire holding of gilts.

CAPITAL GAINS TAX COMPUTATION 1977

Compute the held over gain, TCGA92/S134 (2)(a)

Disposal proceeds 20,000 x £4 = £80,000
   
   
Acquisition cost 20,000 x £3 = £60,000
Held over gain £20,000

CAPITAL GAINS TAX COMPUTATION 1990

The transfer to the wife does not trigger a release of the held over gain, TCGA92/S134 (4). The wife inherits the liability to the held over gain.

CAPITAL GAINS TAX COMPUTATION 1991

The disposal of the gilts is exempt, TCGA92/S115. Both disposals release the held over gain, TCGA92/S134 (2)(b). The gain is halved by the operation of TCGA92/SCH4/PARA4.

Mr Mooney 54,000 x £20,000 ¸ 2 = £6,428
     
  84,000  
     
Mrs Mooney 30,000 x £20,000 ¸ 2 = £3,571
  84,000