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CGT liability or paper for paper exchange?

Client sold shares for mix of cash and sales rights

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Good morning,

We have a client who has disposed of their 40% holding in a foreign company for cash consideration of £200,000 plus the exclusive rights to sell in certain regions of the world.

The base cost of his shares was £100 and the value of his shareholding pre-sale amounted to approx £1.5 million.

My question is this. Is his CGT liability going to be £1.5 million less base cost of £100? Or will the sales rights just obtain a proportion of his share base cost?

In any case, I suspect the first choice would be better so that he can 'bank' the ER and obtain an uplift in base cost in the event he ever sells the rights.

I've looked online and in Tolleys, but I think I am being too specific with my searches.

Any help and nudge towards the relevant legislation/guidance would be gretaly appreciated.

Replies (2)

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By gbuckell
05th Mar 2019 10:29

You have in mind the rollover rules in TCGA 1992 s135. For this to apply the acquiring company must issue shares or debentures as part of the consideration. I struggle to see how distribution rights fall within this definition. So, in my view, the sale is for £200k plus the value of the rights. This is probably the £1.5m you mention.

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By Wilson Philips
05th Mar 2019 11:48

Who were the shares sold to? The £1.5m figure may or may not be relevant, depending on the status of the sale (for instance whether it was a connected party sale or otherwise not at arms length).

If it's not relevant, then you'll need to somehow value the exclusive rights. That value, plus the £200k, would be the taxable consideration.

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