CG55490 - Quoted options to subscribe for shares: issue with share reorganisation: example
- April 2008 Mr Brown buys 10,000 shares in Trentham Traders Ltd, cost 拢12,000.
- January 2011 Trentham Traders Ltd is taken over by Vale Ventures PLC a quoted company. For every 50 shares held Mr Brown receives one unit of Vale Ventures PLC loan stock, nominal value 拢100, with detachable warrants to subscribe for 10 Vale Ventures PLC shares at a price of 220p per share at any time before 31 December 2015.
- April 2012 Mr Brown sells his share warrants for 拢950.
Capital Gains Tax computation
The Vale Ventures PLC loan stock is a relevant security as defined in TCGA92/S108, see CG51650+. It is not a qualifying corporate bond, see CG53700, because the warrant gives the right to acquire further shares. The loan stock is treated as acquired at an amount equal to the cost of the Trentham Traders Ltd shares; 拢12,000 see CG52020.
The market value* of one unit of loan stock and one warrant on the first day of dealing is
- Loan stock = 拢96.25
- Warrants = 0.18p
* This is the 1/4 up value as defined in TCGA92/S272 (3), see CG59510.
Therefore, the total market value is
| - | - | Calculation | - | Amount |
|---|---|---|---|---|
| Loan stock | = | 拢96.25 x 200 | = | 拢19,250 |
| Warrants | = | 18p x 2,000 | = | 拢360 |
Therefore, the acquisition cost of the loan stock is
(拢12,000 x 拢19,250) / (拢19,250 + 拢360) = 拢11,780
and the warrants
(拢12,000 x 拢360) / (拢360 + 拢19,250) = 拢220
The gain on the disposal of the warrants in April 2012 is
| - | 拢 |
|---|---|
| Disposal proceeds | 950 |
| Less Cost | 220 |
| Chargeable Gain | 730 |