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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Quoted options to subscribe for shares: issue with share reorganisation: example

  • April 2008 Mr Brown buys 10,000 shares in Trentham Traders Ltd, cost £12,000.
  • January 2011 Trentham Traders Ltd is taken over by Vale Ventures PLC a quoted company. For every 50 shares held Mr Brown receives one unit of Vale Ventures PLC loan stock, nominal value £100, with detachable warrants to subscribe for 10 Vale Ventures PLC shares at a price of 220p per share at any time before 31 December 2015.
  • April 2012 Mr Brown sells his share warrants for £950.

Capital Gains Tax computation

The Vale Ventures PLC loan stock is a relevant security as defined in TCGA92/S108, see CG51650+. It is not a qualifying corporate bond, see CG53700, because the warrant gives the right to acquire further shares. The loan stock is treated as acquired at an amount equal to the cost of the Trentham Traders Ltd shares; £12,000 see CG52020.

The market value* of one unit of loan stock and one warrant on the first day of dealing is

Loan stock = £96.25
Warrants = 0.18p
  • This is the 1/4 up value as defined in TCGA92/S272 (3), see CG59510.

Therefore, the total market value is

Loan stock = £96.25 x 200 = £19,250
Warrants = 18p x 2,000 = £360

Therefore, the acquisition cost of the loan stock is

£12,000 x £19,250                    = £11,780

                  £19,250 + £360

and the warrants

£12,000 x   £360                      = £220

                     £360 + £19,250

The gain on the disposal of the warrants in April 2012 is

Disposal proceeds 950
Less Cost 220
Chargeable Gain 730