Share Pool and Alteration of Share Capital in context to Taxation System for Company Registration United Kingdom


This blog comprises of the rules related to shares and securities as owned by the individuals independently or in a company. There is a need to specially consider the securities and shares since there is a chance that multiple shares and securities are held by an investor in the same ltd company formation UK, that are identical in nature but are bought at different prices and different times. Different ltd company formations UK have different rules for securities and shares. The blog takes into discussion the gains computation of disposals and the individuals’ identification rules. It is important to note that the rules for the years 2013/14 and 2012/13 are almost the same.

Rules to Match the Shares Purchased and the Shares Sold

In the case of comparison between the shares sold by the individual and the share bought by him, the matching is done using specific rules. As the first step, the disposals are matched with shares that are obtained on the very same day, then the disposals are matched within the next 30 days and in the end, the disposals are matched with the share pool.

While computing losses or gains on disposal, specific problems are presented by the quoted and unquoted shares. As an example, consider a person who purchases some quoted shares in a UK PLC Company formation. The shares bought on May 5, 2003 are 100 in number, costing 150 pounds. The shares bought on August 17, 2013 are also 100 in number, costing 375 pounds. On August 15, 2013 he sales out 120 shares out of his total, at the price of 1450 pounds. In order to compute the chargeable gain, we should be able to determine that which of shares were actually sold out among the two holdings. Matching rules are required here to serve the purpose of the decision making that which shares have been sold and secondly, what should be the allowable cost on disposal.

We are concerned with the securities and shares of the same class in the same company at a single time instant. If an individual is the owner of both the preference shares and ordinary shares in a UK PLC Company formation, then the two types of shares will be dealt with, completely distinctly because they are separable.

The disposals of shares and securities for the individuals are matched with the acquisitions as mentioned in the following order: Acquisitions on the same day; the bed and breakfast rule i.e. acquiring within the next 30 days. The FIFO (First in, first out) rule is applied in the case where the acquisitions are more than one; finally, the shares and securities in the share pool are matched.

In the absence of the bed and breakfast rule, there is a chance of occurrence of any loss or gain on the sale as it might be compared or matched with the original acquisition. The rule ceases the sale of shares in order to form a capital loss or gain that according to normal practice, is to utilize the yearly amount of exempt and then purchasing again a few days later.

An important practice is to rightly match the shares sold to those originally bought.

What is the Share Pool?

It is important to have a knowledge of the computation of payable taxes.

The Pool

Any shares are referred to as a pool whose acquisition is performed and a growth is noted by acquiring new shares and the pool contracts as the shares are disposed.

The two important computations that need to be considered while considering the utilization of share pool, include the price of the shares and the count of the shares.

Share Pool’s Disposals

When a disposal occurs from a share pool, the price liable to the disposed of shares is subtracted from the amounts that are contained in the share pool. The fraction A/ (A + B) is used for any other part disposal that is calculated in order to find the cost’s proportion to be extracted out of the pool. In most cases, we’re not provided with the remaining shares values (B), then we just make use of the count or number of shares.

Share Capital Alterations


In the case of a variation or alteration of a share capital, the main rule is only to apply tax on gains instantly if the cash payment is made to the investors.

Main Principle

In the case of organizing again, the original base cost of shareholder’s assets before must be divided or apportioned between whatever the shareholder will have in the future.

Distribution of the Capital

As a usual practice, the distribution of a capital is considered as an asset’s part disposal. However, in the case if the distribution is minor or mall i.e. less than 5 percent of the cost of shares and 3000 pounds in amount, then for the aim of calculation of losses or gains on future disposals, any gain could be deferred by considering the distribution as a subtraction from the shares’ cost.

A taxpayer will be allowed by the HMRC if the taxpayer demands a part disposal to utilize his yearly amount of exempt etc., even if the proceeds are noted to be minor or small.

Issues Related to Scrip or Bonus

In the case of a company registration UK, intending to issue bonus shares, then in this scenario, the original holding’s size is incremented. There is no requirement of the adjustment of the original cost as the bonus shares are issued at no price, and are hence free shares. However, the bonus results in the increment of the numbers bought at specific instants. In this case, the normal matching rules will then be applicable.

Issues Related to Rights

A difference exists in the bonus issues discussed above and the issues related to rights. The bonus issue has already been discussed. In the case of an issue of rights, you pay for the new shares resulting in the adjustment of the original price.

As an open offer, the shareholders hold a right of the subscription of a least count of shares depending on the holdings that exist and may also purchase some shares additionally. A considered rights issue comprises of subscriptions that are least entitled. Any further subscriptions will be taken as the new shares buying.

Sales of the Rights without Paying the Company

In the case of the shareholder who decides not to take up his rights but sells the rights to a third party without making a payment to the company registration UK, then the proceeds in this case are referred to as a distribution of capital and this kind of dealing is done under the rules of part disposal or, if less than the higher of 3000 pounds and 5 percent of the shareholding’s cost leading to disposal, as a decrement in the original cost. However, if the gain is to be covered by the yearly amount of exempt, as the taxpayer makes the choice of utilizing the treatment of part disposal, then the above decrement of cost would not be applicable.

When Do Reorganisations Occur?

A reorganisation is said to occur when debenture, a mixture of new shares or the new shares themselves, their issuance is done in return of the original shareholdings. The old shares are replaced by the new shares in such a case. The question arises here that how to divide or apportion, at the event of reorganisation, the original cost between the various types of issued capital.

If the new securities and shares are of the quoted type, then in this case, the price is divided or apportioned with reference to the values of market of the capital’s new types after the reorganisation takes place on the first quotation day.

In case of the new securities and shares being unquoted, and a reorganisation occurs, then the price of the original holding is divided or apportioned by making use of the new securities and shares’ values when it is their time of being disposed of.

For both the unquoted and quoted securities and shares, the professional fees or any such incidental prices are taken to be an extra consideration for the new securities and shares.

Rules in the Case of Takeovers

If the exchange occurs for the purposes that are bona fide commercial and not to avoid the tax, only then the specific rules of takeovers are applicable.

In the scenario of a ‘paper for paper’ takeover, a chargeable gain does not occur. The price of the original holding is sent down to the new holding which then takes over the original holding. If some portion of the takeover consideration is in the form of cash, then the normal part disposal rules will be applicable for the computation of gain.

If the cash that is acquired is less than 3000 pounds and the higher of 5 percent of the net takeover’s value, then the cash acquired will be subtracted from the cost under the small distribution rules for fulfilling the purpose of additional disposals. However, it can be avoided or escaped if the taxpayer makes the choice of the treatment of part disposal.

The takeover rules are applicable in either of the following cases:

  • When the company that issues the new shares is left with an amount exceeding 25 percent of the ordinary share of capital of the old company
  • When the majority power of voting lies with the old company
  • When the company that issues the new shares proposes an offer to the other company’s shareholders keeping in mind the initial condition which if fulfilled, would grant a control to the first company over the second one

It should be very carefully checked that the purpose of the exchange’s occurrence is bona fide commercial reasons and the avoidance of corporation tax or CGT must not be its sole or one of the many important aims.

The right to acquire deferred consideration as the debentures or shares in the new company might be included as a part of the takeover consideration. The deferred consideration’s amount cannot be determined at the time or date of takeover, probably because it depends on the profits in future from the company that has sold its shares. This amount, as a right, is secured as it is treated and valued as a security. Hence, this leads to the conclusion that there is no requirement of the calculation of a gain under the light of a right, as the takeover rules are applicable in this scenario. The right that leads to the issue of debentures and shares, then that right is taken as a right’s conversion and once again, no gain occurs.

What happens in the case of an Interaction with the Relief of Entrepreneur?

A problem might occur in the case that the reorganisation’s rules, as discussed above, are applicable and the new shares are not liable with respect to the entrepreneur’s relief in the case of their disposal. As an example, consider the scenario where a shareholder has left the company and does not work for the company anymore or if not that, the shareholding level is quite low. In such a scenario, the relief of an entrepreneur applicable on the old shares will be lost without any specific rules.

As a solution, it is decided in the legislature that the shareholder has the right to take back the application of usual reorganisation or takeover treatment and he can also demand for the relief of entrepreneur in the year of takeover or reorganisation.

As a next step, as already mentioned, the shareholder will make a disposal that is chargeable with proceeds of the prices divided or the shares bought.

The election for the decision must be held on the same date on which the demand for the relief of entrepreneur has been made. So in the case of the takeover taking place in the years of 2013 and 2014, the claim must be demanded by January 31, 2016.

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