Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Capital Gains Manual

Close companies: transfers at undervalue: shareholder is close company

A shareholder at the date of transfer may also be a close company. In that case the value of its own shares may have been reduced by the transfer at undervalue. Therefore the amount of undervalue is also apportioned between the shares in the close company and the shares of any close company which is a shareholder in that company which were acquired before the transfer at undervalue.

EXAMPLE

  • Assume the facts in the example in CG57122 are the same except that Mrs Holland is a close company, Holland Ltd.
  • March 1987 Mr France buys 500 out of 1,000 shares in Holland Ltd for £70,000.
  • December 1990 Mr France sells his shares for £120,000.The acquisition cost of Mr France’s shares in Holland Ltd is reduced by a proportionate share of the transfer at undervalue by Happy Holidays Ltd.

The transfer at undervalue apportioned to the Holland Ltd shares was £10,000, see CG57122.

Therefore the amount apportioned to Mr France’s shares in Holland Ltd is

£10,000 x 500 = £5,000
         
    1000    

and the cost of his shares is reduced to £65,000.

| | | No of
shares | Pool of qualifying expenditure | Pool of indexed expenditure | || | 01/03/1987 | | 500 | £65,000 | £65,000 | | | | | | | | Indexation
March 1987-
December 1990 0.291 | | | | £18,915 | | | | 500 | £65,000 | £83,915 | | | | | | | | | | | | £ | | | Disposal | proceeds | | 120000 | | less | Cost | | | 65000 | | | | | Unindexed gain | 55000 | | | | | | | | less | Indexation | | | 18915 | | | | | Chargeable gain | 36,085 | | | | | | |