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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Value shifting: amount of value transferred

A minority holding of shares will generally be worth less per share than a majority holding. Value may pass from a majority holding to one or more minority holdings. The increase in the value of the minority holding, or holdings, may be less than the decrease in the value of the majority holding. The aim of the legislation is to tax the amount of value which actually passes into the transferee holdings, not the amount which passes from the transferor. So in these cases the disposal proceeds assessable on the transferor are limited to the increase in value received by the transferees.


  • In September 2004 W Ltd was formed by Mr White with an authorised share capital of 10,000 £1 shares. He subscribed for 4,000 of these shares, at par.
  • In January 2011 Mr White arranges that the company should issue 3,000 shares to each of his two children, at par.

Shares and Assets Valuation agreed that the value of Mr White’s shares immediately before the issues in January 2011 was £60 per share, and immediately afterwards was £25 per share. The value of the children’s shares on issue was £20 per share.

The value passing out of Mr White’s original shares was as follows.

  • Value before issue of new shares in January 2011: 4,000 x £60 = £240,000
  • Value after issue of new shares in January 2011: 4,000 x £25 = £100,000
  • Value passing out of Mr White’s shares - £140,000

The value passing into the new shares is

value of children’s shares: 3,000 x 2 x £20 = £120,000
less price paid (£1 per share) = £6,000
value passing into new shares = £114,000

The figure of disposal proceeds used in the computing Mr White’s chargeable gain is restricted to the value passing into the new shares, £114,000.

The disposal is a part disposal and the proportion of the cost allowable will be

       £114,000                      = 53.27%

£114,000 + £100,000

You compute Mr White’s 2010-11 capital gain as follows.


  No of
shares Pool of qualifying expenditure      
  September 2004 4,000 4,000  
  part disposal - 2,131  
    4,000 1,869  
  January 2011 Disposal proceeds   114,000
  less Cost   2,131
      Chargeable gain 111,869

The children’s allowable expenditure on the shares will be

  • the £3,000 they each subscribed for their shares;
  • the £57,000 passing to each of them from the original shares total £60,000 each (= 3,000 shares at £20 per share).