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Tax on fractional return following consolidation.

Practical Issues
csearle
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Tax on fractional return following consolidation.

#339530

Postby csearle » September 10th, 2020, 6:26 pm

Hi, my son just asked me this and I was unable to answer him satisfactorily: if one gets a fractional amount credited to one's (non-ISA) stockbroking account because of a share consolidation how is it to be correctly treated for tax purposes?

Is it like a dividend income?

Thanks for any help.

Regards,
Chris

Alaric
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Re: Tax on fractional return following consolidation.

#339542

Postby Alaric » September 10th, 2020, 7:08 pm

csearle wrote:if one gets a fractional amount credited to one's (non-ISA) stockbroking account because of a share consolidation how is it to be correctly treated for tax purposes?

Is it like a dividend income?


Unless it's notified as being a dividend, I would expect that you are supposed to deduct it from the base cost that would be used in an eventual CGT calculation,

PinkDalek
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Re: Tax on fractional return following consolidation.

#339546

Postby PinkDalek » September 10th, 2020, 7:22 pm

More info possibly needed (did it involve a rights or bonus issue https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57856) but does this assist?

Not precisely the same scenario and only a basic link as it were but most likely he can merely knock off the fractions receipt from his capital gains tax base cost (section 104 pool).

https://www.gov.uk/guidance/capital-gains-tax-share-reorganisation-takeover-or-merger#shares-and-cash

Shares and cash

If the company taking over gives you cash and shares you may have to pay Capital Gains Tax on the cash you get.

If you get a small amount of cash

You don’t pay Capital Gains Tax if both of the following apply:

you get less than £3,000 or an amount less than 5% of the value of your shares in the company, valued just before the takeover
the cash you get is less than the cost of your original shares
When you sell or dispose of your new shares and work out your capital gain your allowable cost will be the cost of the original shares less the amount of cash you get.

If you get cash that’s more than the cost of your original shares you need to work out your capital gain on the amount you get. ...


Most unlikely to be treated as dividend income.

A little bit more detail exists in the HMRC Capital Gains Tax Manual:

Small capital distributions: general
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57835

Have a good evening! ;)


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