LLM8140 | Capital gains: Names: syndicate capacity: MAPAs: years of assessment up to and including 1998-99 (3)

Non-cash distributions from MAPA operator

Names leaving a MAPA usually take with them the syndicate participations they held inthe final account they participated in via the MAPA. In this case there is no disposal forCG purposes.

Where the Name subsequently disposes of capacity that was originally acquired through aMAPA, the cost of acquisition of capacity in the particular syndicate that has been soldis based on amounts subscribed to the MAPA operator and the relative value of capacity inthat particular syndicate compared with the overall value of the syndicate capacitieswithdrawn from the MAPA at the date the Name withdraws from the MAPA.

Cost of acquisition of capacity taken from a MAPA

When a Name leaves a MAPA, the operator will convert his or her share of capacity heldvia the MAPA to the same amount of capacity in the same syndicates but to be held on abespoke basis. The MAPA operator will inform the Name of the indexed base cost of eachparticipation up to the date of conversion.

The indexed base cost for each syndicate capacity is arrived at by the MAPA operator asfollows.

First the MAPA Operator takes the weighted average value (WAV) of the capacity in eachsyndicate in which the MAPA was involved in that account. WAVs are the average of pricesachieved for capacity in a particular syndicate in that summer’s auctions and arepublished a week or two after the summer auctions have ended.

For instance if syndicate A capacity was traded £500,000 @ 10p/£ in auction 1,£1,000,000 @ 8p/£ in auction 2 and £1,500,000 @ 9p/£ in auction 3, the WAV would be(0.5m x 10p + 1m x 8p + 1.5m x 9p)/3m = 8.83p/£.

A value is then ascribed to the Name’s entire MAPA portfolio by summing the productof the WAV for each syndicate and the Name’s share of that capacity. If a Nameunderwrote £10,000 in syndicate A via the MAPA, the value contributed by thatparticipation is 10,000 x 8.83p = £883.

The cost of acquisition of each syndicate participation is then worked out by apportioningthe Name’s subscription to the MAPA across the participations by reference to theircontributions to the value of the Name’s entire MAPA portfolio. For instance if theName in the example above had paid £5,000 to join the MAPA the cost of acquisition ofsyndicate A capacity is:

883/MAPA value x £5,000.

For indexation purposes, the date of acquisition is taken as the date the Name wasirrevocably committed to underwrite. For instance if the subscription was paid in 1996, toparticipate via the MAPA for the 1997 account, indexation would run from 30 September 1997(see LLM8240). Indexation is not due after April 1998, and fordisposals after that date, indexation is only given up to April 1998, or not given at allif the asset was acquired after that date.