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HMRC internal manual

Capital Gains Manual

Transfer of a business to a company: example: consideration wholly in shares

A transferred his business with all its assets to X Ltd in consideration for an issue of 8,000 shares in X Ltd. Liabilities in the sum of £15,000 were transferred with the business.

The balance sheet of the business was as follows:

  £   £
       
    Business assets:  
       
Capital & Reserves 70,000 non-chargeable 49,000
Creditors 15,000 chargeable (at cost) 23,000
    cash 13,000
  85,000   85,000

It was agreed in the course of the negotiations that the current market values of the assets of the business were:

non-chargeable assets £55,000
   
chargeable assets £50,000

and these values were adopted for the purpose of determining the consideration payable to A.

Gains on the transfer of chargeable assets:

  £
   
Market value on transfer 50,000
Less Cost 23,000
  27,000

The whole of the consideration received by the transferor in exchange for the business was 8,000 shares in X Ltd.

The value of the shares was £103,000:

  £
   
Non-chargeable business assets 55,000
Chargeable business assets 50,000
Cash 13,000
  118,000
Less creditors 15,000
Value of consideration 103,000

Proportion of aggregate net gains appropriate to the consideration in shares:

Gains £27,000 x 103,000(A) = £27,000
       
    103,000 (B)  

The cost figure of the shares to be used on the occasion of their disposal is £76,000 (£103,000 - £27,000).