ACCA ATX ^UK Syllabus A2. Chargeable gains - Part disposal rules for rights issues - Notes ^{1 / 4}

Rights issues

If a shareholder who is offered the rights issue does not wish to purchase more shares in the company they can sell the right to buy the new shares to another person.

This is known as a "sale of rights nil paid".

The capital gains tax treatment of a 'sale of rights nil paid' depends on the amount of sale proceeds received.

1. If the sale proceeds received are >5% of the value of the shares on which the rights are offered and >£3,000 then this is deemed to be a part disposal of the original shares held and a normal part disposal computation is required.

2. If the sale proceeds received are less than 5% of the value of the shares on which the rights are offered or  less than £3,000 then this will not be considered to be a chargeable disposal and the sale proceeds received are deducted from the original cost of the shares.

Illustration

Edward bought 12,000 shares in P. Plc. for £24,000.

On 13/08/2024 there was a 1:5 rights issue for £2.35 (M.V. £2.65).

Edward sold the rights for £1,500. 

What chargeable gain will arise?

• Solution

  The sale proceeds are below £3,000 and 5% value of his ownership is (£2.65*12,000*5%) = £1,590.

  Therefore this will be considered to be a small part disposal and the sale proceeds will be deducted from the original cost of the shares leaving a base cost of:

  Original cost £24,000
  Less sale proceeds(£1,500)
  Base cost £22,500