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CGT: Tesco Shareholder Compensation

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pochisoldi
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CGT: Tesco Shareholder Compensation

#131538

Postby pochisoldi » April 11th, 2018, 8:14 pm

Back in 2014 Tesco's board mislead the market, and certain shareholders who bought (or increased their holding) between the dodgy announcement, and the announcement of the truth were eligible to claim compensation. This amounted to 24.5p per share, plus interest.

The interest is straight forward income, however the CGT isn't.

For the record, the shares concerned were bought in one tranche, original cost £3045. The compensation was £318. (which exceeds the 5% definition of a "small capital distribution")
I still hold the original shares.

I think that there's three ways to handle this:

Is this treated as a partial disposal in 2017/18, or should I treat this as a "refund" on what I paid? (and adjust the acquisition cost for CGT purposes)

If I treat it as a partial disposal, then I don't know how to handle this - as far as I'm concerned the nature of the underlying asset (the tesco shares) hasn't changed.

Anyone else got any experience of this or comments?

PochiSoldi

PinkDalek
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Re: CGT: Tesco Shareholder Compensation

#131558

Postby PinkDalek » April 11th, 2018, 9:21 pm

I didn’t spot anything pertinent here https://assets.kpmg.com/content/dam/kpm ... l-faqs.pdf

If it is a capital sum derived from an asset, then you can use the small cash proceeds treatment for simplicity. The 5% isn’t the only criteria, if the cash proceeds are less than £3,000 you can knock them off your base cost:

https://www.gov.uk/guidance/capital-gai ... s-and-cash

That would effectively be treating it as a refund!

pochisoldi
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Re: CGT: Tesco Shareholder Compensation

#131605

Postby pochisoldi » April 12th, 2018, 8:37 am

Thanks for the reference - I had a feeling that there was a "5% or under £X" but the I could only find references to 5% in the HMRC CGT Manual.

The capital sum was effectively given in exchange for the surrender of rights to sue that attached to the shares.

PochiSoldi

Gengulphus
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Re: CGT: Tesco Shareholder Compensation

#131620

Postby Gengulphus » April 12th, 2018, 9:37 am

pochisoldi wrote:Thanks for the reference - I had a feeling that there was a "5% or under £X" but the I could only find references to 5% in the HMRC CGT Manual.

The £3,000 check is in the HMRC Capital Gains manual - see https://www.gov.uk/hmrc-internal-manual ... al/cg57836, third paragraph.

But basically, I don't really recommend using the HMRC manuals as one's first resort for answers to tax questions - more a last resort! That's because although the manuals contain a huge amount of detail that's sometimes needed to answer a question, it's not always easy to find - one can easily miss important stuff just by not looking in quite the right place. So I would use the more taxpayer-oriented material as the first resort, and fall back on the manuals if it leaves something unresolved.

In this case, there is for instance "HMRC accept that a cash receipt on a takeover is small if either it’s less than £3,000 in total, or it isn’t more than 5% of the value of the shares in the original company immediately before the takeover" in their helpsheet about takeovers and reorganisations (looking through the notes and helpsheets for paper tax returns is often helpful even if you're doing the tax return online - they're often a lot more comprehensive/useful than the online system's help), or the following from https://www.gov.uk/guidance/capital-gai ... -or-merger:

There is no Capital Gains Tax to pay on the cash you get if both of the following apply:
•you get a ‘small’ amount of cash, usually less than £3,000 or an amount less than 5% of the value of your shares in the company - valued just before the rights issue
•the cash you get is less than the cost of your original shares

That second condition is fairly unlikely to matter, but can do so if a share has made a lot of small capital distributions or has grown massively in value since one's original purchase.

Gengulphus


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