SolvedCG57857 | Capital distributions: rights issue: computation
From HM Revenue & Customs · Capital Gains Manual
The normal computational rules of TCGA92/S122 apply including the rules on small capital distributions.
Example
June 2017 Mr Butcher buys 20,000 shares in Lloyds Chemists Plc at a price of 160p per share. (20,000 x 1.6 = 32,000)
May 2018 Lloyds Chemists Plc declares a 1 : 2 rights issue at 230p per share. Mr Butcher sells all his rights for 35p per entitlement to each new share. (10,000 x 35p = £3,500).
The market value of Lloyds Chemists Plc shares at the date of the capital distribution was 267.5p per share.
Value capital distribution = £3,500 x 100 / £53,500 = 6.5%
(Value shareholding = £53,500)
The capital distribution is not small see CG57835. So the sale of the rights is treated as a disposal.
Capital Gains Tax computation
Pool of qualifying expenditure
32,000 x £3,500 / (£3,500 + £53,500) = £1,964
| - | - | - | £ |
|---|---|---|---|
| - | Disposal proceeds | - | 3,500 |
| less | Cost | - | 1,964 |
| - | - | Chargeable gain | 1,536 |
Section 104 Holding
| - | Number of shares | Pool of qualifying expenditure |
|---|---|---|
| Acquisition | 20000 | £32,000 |
| Capital distribution | - | (£1,964) |
| - | 20000 | £30,036 |
NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.