Capital Gains Tax on share buyout

[Watis]

During the previous fiscal year, one of my shareholdings was bought out with cash, as the company was taken over.

The amount I received is above the annual CGT exemption - but I thought I read somewhere that, when the shares are 'sold' as the result of a forced share buyout for 100% cash, the gain is exempt from CGT. Now of course, I can't find that source.

Is this correct?

Also, these shares were acquired in the 1980's and 1990's from several Sharesave schemes (the company was my employer at the time). I may no longer have the paperwork that proves how much I paid for them. Will this be an issue?

TIA,

Watis

[Alaric]

- but I thought I read somewhere that, when the shares are 'sold' as the result of a forced share buyout for 100% cash, the gain is exempt from CGT. Now of course, I can't find that source.

No real surprise that it cannot be found, as it isn't true.

Up to some limits, you don't actually have to show your CGT calculations to HMRC. If you can satisfy yourself that with a reasonable estimate of what you paid for the shares, the gain is below the annual exempt amount, that may suffice.

[scrumpyjack]

As I recall there are/were various favourable arrangements for taxing gains on employee shares. I suggest you ask the company secretary what your acquisition costs were and whether any tax exemptions applied. He/she is the most likely person to have some records.

If the total proceeds were less than 4 x the annual CGT allowance (4x 12300) and total gains in the tax year less than 12300, you do not need to put anything in your tax return about it.

[Watis]

As I recall there are/were various favourable arrangements for taxing gains on employee shares. I suggest you ask the company secretary what your acquisition costs were and whether any tax exemptions applied. He/she is the most likely person to have some records.

If the total proceeds were less than 4 x the annual CGT allowance (4x 12300) and total gains in the tax year less than 12300, you do not need to put anything in your tax return about it.

Thank you for the reply, scrumpyjack. I don't recall seeing it before!

For me, the total proceeds were less than £49,200 and I had no other gains. Does this mean that there is no CGT to pay, and also that I don't need to declare it, whether I complete a tax return or not?

TIA,

Watis

[scrumpyjack]

As I recall there are/were various favourable arrangements for taxing gains on employee shares. I suggest you ask the company secretary what your acquisition costs were and whether any tax exemptions applied. He/she is the most likely person to have some records.

If the total proceeds were less than 4 x the annual CGT allowance (4x 12300) and total gains in the tax year less than 12300, you do not need to put anything in your tax return about it.

Thank you for the reply, scrumpyjack. I don't recall seeing it before!

For me, the total proceeds were less than £49,200 and I had no other gains. Does this mean that there is no CGT to pay, and also that I don't need to declare it, whether I complete a tax return or not?

TIA,

Watis

Yes, as long as the gain was less than £12,300 you do not need to do anything and there is no tax to pay

[Watis]

- but I thought I read somewhere that, when the shares are 'sold' as the result of a forced share buyout for 100% cash, the gain is exempt from CGT. Now of course, I can't find that source.

No real surprise that it cannot be found, as it isn't true.

Up to some limits, you don't actually have to show your CGT calculations to HMRC. If you can satisfy yourself that with a reasonable estimate of what you paid for the shares, the gain is below the annual exempt amount, that may suffice.

While investigating further, I've located the source of my original assertion that my capital gain might be exempt.

From: https://www.gov.uk/guidance/capital-gai ... -or-merger

"As long as you meet certain conditions you’re not treated as if you’ve sold or disposed of any of the old shares for Capital Gains Tax purposes. One of those conditions is that the reorganisation applies equally to all holders of the class of shares being reorganised."

I believe this applies to my situation. DAK how I can confirm or otherwise that my gain is exempt?

Otherwise I'll phone HMRC for guidance.

TIA,

Watis

[genou]

While investigating further, I've located the source of my original assertion that my capital gain might be exempt.

From: https://www.gov.uk/guidance/capital-gai ... -or-merger

"As long as you meet certain conditions you’re not treated as if you’ve sold or disposed of any of the old shares for Capital Gains Tax purposes. One of those conditions is that the reorganisation applies equally to all holders of the class of shares being reorganised."

I believe this applies to my situation. DAK how I can confirm or otherwise that my gain is exempt?

Otherwise I'll phone HMRC for guidance.

TIA,

Watis

You need to read it more closely. If you had received new shares, your original costs would have rolled over in to them, and no gain would crystallise. But you said you received cash, so in that case you will have a CGT event.

[Watis]

While investigating further, I've located the source of my original assertion that my capital gain might be exempt.

From: https://www.gov.uk/guidance/capital-gai ... -or-merger

"As long as you meet certain conditions you’re not treated as if you’ve sold or disposed of any of the old shares for Capital Gains Tax purposes. One of those conditions is that the reorganisation applies equally to all holders of the class of shares being reorganised."

I believe this applies to my situation. DAK how I can confirm or otherwise that my gain is exempt?

Otherwise I'll phone HMRC for guidance.

TIA,

Watis

You need to read it more closely. If you had received new shares, your original costs would have rolled over in to them, and no gain would crystallise. But you said you received cash, so in that case you will have a CGT event.

You mean:

"You must pay Capital Gains Tax on any cash you get as part of the takeover".

I stopped reading too soon, so thank you for pointing that out, genou. I'll have to locate the original documentation after all.

Watis

[Watis]

Further to this thread, please could I ask for clarification that I have correctly interpreted the CGT rules in my calculation below?

My attempts to elicit advice from HMRC as to how best to declare this have failed – partly because the phone system spits me out after choosing the most relevant options and, no doubt, because they have closed the helpline for the whole of August.

Based on the information I have, the basic – and rounded – calculation is:

- Value received for shares: £25,000
- Amount paid for shares: £3,000
- Therefore, a capital gain of: £22,000
- CGT allowance for 2022/23: £12,300
- Leaving CGT due on: £9,700 (at the appropriate rate)

Have I got this correct, i.e. there is no allowance for inflation?

All the shares were acquired around 30 years ago in a series of employee sharesave schemes. No other shares in this company have been bought or sold.

I also no longer have all the paperwork for the sharesave schemes, so the amount I paid is an estimate based on the share price for the final scheme, which I do have the paperwork for. Is this likely to be a significant issue?

TIA for your responses.

Watis

[JohnB]

There is no allowance for inflation. If you can show reasonable attempts to find the the original price, like a company secretary letter, an estimate should be fine, after all HMRC wont do any better. And write to HMRC if they dick around with their helpline

[ursaminortaur]

There is no allowance for inflation. If you can show reasonable attempts to find the the original price, like a company secretary letter, an estimate should be fine, after all HMRC wont do any better. And write to HMRC if they dick around with their helpline

Labour replaced indexation (inflation protection) with taper relief ( which reduced the tax on assets held for a long time ) in 1998. Taper relief in turn was abolished in 2008 - though to compensate the rate of CGI was reduced to 18%.

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_Kingdom

Labour Chancellor Gordon Brown replaced indexation allowance with taper relief in 1998 to reward risk-taking and promote enterprise.[1] Taper relief was abolished in 2008. Indexation allowance generally reduced the tax payable on a gain by increasing the cost of the asset in line with inflation. Taper relief reduced the tax payable on assets that were owned for longer periods of time and its removal was necessitated, at least in part, because the UK government felt that private equity firms were making excessive profits by benefiting from overly generous taper relief on business assets. The changes were criticised by a number of groups including the Federation of Small Businesses, who claimed that the new rules would increase the CGT liability of small businesses and discourage entrepreneurship in the UK.[6]


Rates

From 1965 to 1988, most gains incurred a 30% rate of capital gains tax. In 1988, Conservative Chancellor Nigel Lawson aligned rates with those for income tax (where the top rate was 40% at the time) and this regime continued until 2008, when Gordon Brown changed the rate to 18% for all taxpayers.[1]