VCM48300 - VC loss relief: special rules for share reorganisations: no new consideration given for new shares: example
ICTA88/S574 (2)(a)
The following example shows how you calculate the VC loss relief due when a qualifying trading company has made a bonus issue of shares.
- April 1992 a taxpayer subscribes for 1,000 shares in H Ltd at a cost of £5,000.
- April 1998 H Ltd makes a bonus issue of nine shares per each existing share held.
- July 1999 the taxpayer sells half of the shares, at arm's length, for £3,000.
- September 2001 H Ltd ceases trading and is placed into liquidation.
- December 2001 the liquidator makes a final distribution of 5p per share.
The shares fall to be dealt with in a TCGA92/S104 holding. The computations are as follows:
| Number of shares held | Actual cost | Indexed cost | |||||||
| April 1992: Section 104 holding created |
| 1,000 |
|
| £5,000 |
|
| £5,000 |
|
| April 1998: indexation (factor 0.171) |
|
|
|
|
|
|
| £855 |
|
|
|
| 1,000 |
|
| £5,000 |
|
| £5,855 |
|
| April 1998: bonus issue - 9 for 1 |
| 9,000 |
|
|
|
|
|
|
|
|
|
| 10,000 |
|
| £5,000 |
|
| £5,855 |
|
| July 1999 part disposal of 5,000 shares |
| (5,000) |
|
| (£2,500) |
|
| (£2,928) |
|
|
|
| 5,000 |
|
| £2,500 |
|
| £2,927 |
|
| Dec 2001: disposal |
| (5,000) |
|
| (£2,500) |
|
| (£2,927) |
|
Subject to any costs of disposal, the sale in July 1999 has
resulted in a chargeable gain of £72 (£3,000
consideration received less indexed cost £2,928).
The distribution on winding up of the company results in an
allowable loss, as follows:
| Disposal proceeds | (5,000 x 5 pence) |
| £250 |
| less indexed cost | £2,927 |
|
|
| or actual cost | £2,500 | [#] | (£2,500) |
| Allowable loss |
|
| £2,250 |
[#] For individuals, indexation has been frozen at April 1998 -
see CG17207. For disposals on or after 30 November 1993 indexation
allowance cannot create or enhance an allowable loss
Assuming all the conditions for relief are met, the taxpayer
will be able to claim relief for the loss of £2,250 under
ICTA88/S574.
