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Takeovers & Mergers: Cash Settlement

If you are a share holder in a company that is being acquired for a cash settlment, then on take-over your share holding will be sold. After the cash settlement, you will no-longer own shares in the company that was acquired, or the company that acquired your shares. The sale is treated as a normal disposal for Capital Gains Tax purposes.

A shareholder buys 1,000 shares in Company ABC plc @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000

In our example, let us say company XYZ plc takes over ABC plc and in return you receive 200p for each share you hold in ABC plc, your gain would be calculated as:

Acquisition cost = 1000 shares @ 100p = £1,000
Disposal Proceeds = 1000 shares @ 200p = £2,000
Gain = Disposal proceeds - acquisition cost
Gain = £2000 - £1000
Gain = £1,000

For Capital Gains Tax purposes, a full cash settlement is treated in exactly the same way as if you had sold the shares, and so you would input the cash settlement into timetotrade as you would a usual share disposal, as follows:

Firstly, we need to make sure the original share holding is listed in your timetotrade share portfolio. For the purposes of illustration only, we will assume that no commission or stamp duty was paid.

You can see your original share purchase in your portfolio in the screen shot below:

To add the share disposal, click the "add/edit" button as illustrated above. Input the share transaction details as shown:

Date = date of the takeover, in this example 1st June 2009
Symbol = this will be the same as the ticker symbol as your existing holding, in this case ABC
Type = transaction type, your shares are being disposed of in return for a cash settlement. This is accounted for in the same way as a share sale, so select "sell long" from the drop down menu.
Quantity = the number of shares you are disposing of. In this instance your entire holding of 1,000 shares in ABC plc is being disposed of.
Price = this is the settlement per share, in this case you will receive 200p per share held in ABC plc.
Commission = nil in this example
Tax = nil - you do not normally incur stamp duty tax on disposal
Cost = this is the total proceeds you receive from the cash settlement, in this example £2,000

When you have input the details for the disposal, click the "add" button. This will update your accounts, as shown below:

You are finished, so click the "cancel" button. Your portfolio has been updated, so you can now go across to the Capital Gains Tax page - via the drop down navigational menu as shown.

As you can see in the screen shot below, the disposal and cash settlement have been correctly accounted for and as expected has given rise to a taxable gain of £1,000.

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