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Let us consider the tax implications when the cash received is classified as "small".
Using the same example, a shareholder buys 1,000 shares in Company ABC @ 100 pence per share.
Cost base for original holding = 1000 x 100p = £1,000
Company ABC plc is merged with Company XYZ plc. Under the terms of the merger for every share you hold in Company ABC plc you receive 1.5 ordinary shares in Company XYZ plc and 50p in cash. And let us say that the price of ABC plc shares on the day before the merger is 200p.
Firstly we need to determine if the cash settlement is "small" or "large".
Total cash received = 50p x 1,000 shares
Total cash received = £500
This is less than £3,000 and so the cash settlement can be classed as "small".
So to calculate the base cost of the new XYZ plc shares:
Cost base for original ABC plc holding = £1,000
Cost base for new XYZ plc holding = original ABC plc cost base less cash settlement
Cost base for new XYZ plc holding = £1,000 - £500
Cost base for new XYZ plc holding = £500
After the merger you own 1000 x 1.5 shares in XYZ plc:
Average cost per XYZ plc share = £500 / 1,500 shares
Average cost per XYZ plc share = 33.33p
You would input this transaction in to timetotrade's Capital Gains Tax calculator and Share Reorganisation wizard, 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 Takeover / Merger, click on the "share reorganisation" button as illustrated above. This will take you through to the Share Reorganisation page.
Select the date that the Takeover / Merger occurs. In this example, we will say that the date is 1 June 2009.
Next, from the drop down menu select the shareholding that is subject to the Takeover / Merger. In this example, select "ABC"
Now we need to specify the type of share reorganisation. In this instance select "Merger"
We're now nearly done. Next stage, complete the fields as shown below:
- Symbol = input the ticker symbol for the company in which you have received the new shares, in this instance we have received new shares in XYZ plc, so input the symbol XYZ
- Share Issue Ratio = input the ratio of new shares received for every old share owned. In this example we receive 1.5 new shares for every share in ABC plc, so input 1.5 and 1, as shown
- Shares Issued = input the number of new shares received, in this example we receive 1,500 shares in XYZ plc
- Fractional Shares = in this example no fractional shares were received. If you did receive fractional shares, change the field to "yes"
- Issue Price = In this field we actually put the price of the ABC plc shares immediately before the merger - this information is needed so that timetotrade can determine if the cash received is classed as "large" or "small". The price should be input in pounds (or euro / dollar, rather than pence. So in this example, the market value of ABC plc shares immediately before the merger was 200p which we input into this field in pounds, as 2.00
- Cash Received = This is the amount of the cash settlement. In this example, we received £500 so input 500.
When finished click the "submit" button. You will now see a summary of the details input.
Check the details are correct, and click on the blue text "click here to return to ledgers" to take you back to your share portfolio page.
Returning to your share portfolio page, you can see that the merger transaction has been added to your portfolio and you no longer own shares in ABC plc, instead these have been replaced with 1,500 shares in XYZ plc with a base cost of £1,000 as expected.
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