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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Capital gains: Names: syndicate capacity: acquisition and disposal: consideration

Acquisition/disposal at arm’s length

Where capacity has been acquired through the auction process or under a bilateralagreement (LLM1140), the acquisition cost/disposal proceeds willusually be the price paid/achieved.

Where Names have paid to join syndicates newly set up since the 1994 account, theacquisition cost is normally the price paid, if any, to the managing agent to join the newsyndicate.

Holdings before 1995

Where Names joined syndicates before the Syndicate Pre-emption Byelaw was introducedand have remained on those syndicates without purchasing any additional capacity, the costof acquisition of capacity will in all cases be nil.

This is because until the Pre-emption Byelaw was introduced for the 1995 account there wasno pre-emption right. On passing of the Byelaw the Name was ‘given’ thepre-emption right for no cost. If the Name has subsequently increased capacity held in thesame syndicate by purchase, then the cost of the additional capacity will be added to theoriginal nil cost as explained in LLM8040 below.

Re-basing elections can never be valid.

Acquisition/disposal other than at arm’s length

Where the bargain is otherwise than at arm’s length, market value is substitutedfor the price paid. Examples of non-arm’s length transactions are

  • a bilateral agreement between connected parties, for example, if the Name selling the capacity is a shareholder in the corporate member buying it;
  • when a Name transfers capacity to a corporate successor in return for shares.

The following are guides to whether the value put on such a transaction is reasonable

  • the lists of prices achieved in the annual auctions (LLM1140)
  • the prices offered to Names by managing agents who wish to buy out the members of syndicates
  • the value attributed by MAPA operators for capacity transferred to and from MAPAs (LLM8110), as a substitute for a cash payment
  • the value attributed by managing agents in order to share out capacity among the members of syndicates that merge.

Shares and Assets Valuation can advise on the valuation of syndicate capacity.