Question 3a
Liber has requested advice on the timing of the sale of the shares which he acquired in a recent company takeover.
Liber:
– Is UK resident and domiciled.
– Has taxable income of £30,000 each year.
Liber – acquisition of ordinary shares in Mercury plc:
– Liber purchased 800 ordinary shares (a 40% holding) in Vulcan Ltd for £14,000 on 1 July 2008.
– Mercury plc acquired 100% of the ordinary share capital of Vulcan Ltd on 1 June 2018.
– In exchange for each ordinary share in Vulcan Ltd Liber received the following:
– Four ordinary shares in Mercury plc valued at £20 per share immediately after the takeover; and
– £15 cash
– Mercury plc has 200,000 issued ordinary shares.
– Liber has never been a director or employee of either Vulcan Ltd or Mercury plc.
– The takeover was for bona fide commercial reasons and not for the avoidance of tax.
Liber – proposed transaction in Mercury plc shares:
– Liber now wishes to sell all of his shares in Mercury plc.
– He has received an offer from an unconnected person to purchase these shares on 1 January 2019 at a price of £28 per share.
– Liber would prefer to sell the shares to his nephew, Janus. However, this would delay the sale as his nephew will not have the necessary funds to purchase the shares until 1 May 2019.
– Janus has said he will also pay £28 per share.
Required:
(a) (i) Explain, with supporting calculations, the capital gains tax implications for Liber of the takeover of Vulcan Ltd by Mercury plc on 1 June 2018, and a subsequent sale of his Mercury plc shares on 1 January 2019. (8 marks)
(ii) Explain, with supporting calculations, why it would be beneficial for Liber to sell his Mercury plc shares on 1 May 2019, instead of on 1 January 2019. (4 marks)