Transfer of a business to a company: example: consideration partly in shares
A transferred his business with all its assets except cash to X Ltd in consideration for an issue of 1,500 shares in X Ltd plus £108,000 in cash. Liabilities in the sum of £32,500 were transferred with the business.
The balance sheet of the business at the date of transfer was:
|Capital and Reserves||69,500||Non-chargeable business assets||35,200|
|Creditors||32,500||Chargeable assets (at cost)|
In the course of negotiations before the transfer to the company, the following values were agreed as representing the current market values of the assets:
|Net values of assets transferred||117,500|
Computation of chargeable gains on assets:
|Aggregate net gains||55,200|
The consideration received by the transferor for the transfer of the business was 1,500 shares in X Ltd plus cash of £108,000. The total value of the consideration was the value of the business transferred, £117,500. Therefore, the value of the 1.500 shares is £9,500 as follows:
|Total value of the business||117,500|
|Consideration other than shares received by the transferor||108,000|
|Value of the 1,500 shares in X Ltd||9,500|
Proportion of aggregate net gains appropriate to the consideration in shares:
|Gains||£55,200 x||9,500 (A)||= £4,463|
This amount is to be deducted from the cost of the shares. The cost figure for the shares to be used on the occasion of any future disposal is therefore £5,037 (£9,500 - £4,463).
The proportion of the aggregate net gains appropriate to the consideration in cash, (£55,200 - £4,463) £50,737, remains chargeable in the tax year in which the transfer took place.