CG57858 - Capital distributions: rights issue: no gain/no loss transfer

A transfer of rights nil paid between spouses, civil partners of each other or members of the same group of companies must be dealt with on a no gain/no loss basis. For further instructions on transfers between spouses or between civil partners see CG22200+ and intra-group transfers see CG45300+. It will be necessary to apportion the transferor’s allowable cost and (if relevant) indexation allowance to calculate the notional disposal proceeds which would give them no gain/no loss.

TCGA92/S42 (5) provides the normal part-disposal formula in Section 42 applies before the no gain/no loss provisions, see CG12735. So, you apportion the allowable cost in the normal way by reference to market values as shown in the example in CG57857. In the example, if Mr Butcher transferred the rights nil paid to his wife, Mrs Butcher would have acquired the rights at a cost of £1,964.

The usual reason for transferring the rights nil paid will be so that the transferee can subscribe for the new shares. If the transferor does acquire the new shares the cost of the rights is added to the cost of the shares, see CG57855. In spouse or in civil partnership cases you should not object to computations prepared on the basis that the transferor’s holding is unchanged and the transferee’s acquisition cost is merely the subscription price for the shares if

• a transfer of rights nil paid would be a small capital distribution to which TCGA92/S122 (2) applies, and
• both spouses or civil partners are resident in the United Kingdom, and
• the transferee subscribes for the new shares.