Mixed consideration: If more than one type of share, for example ordinary and preference
shares, are acquired in the takeover company then the cost of the original holding is attributed
to the di
ff
erent components of the new holding on a basis of the market values of the new
holding. Thus if a shareholder acquired on takeover £300,000 of ordinary shares and £100,000
of preference shares in the takeover company they would be allocated respectively 3/4 and 1/4
of the original shareholding’s cost. These costs may then be used to compute any subsequent
gain arising on the sale of either those ordinary or preference shares.
Example 4 In May 2016 Mark purchased 4,000 ordinary shares in Silver Ltd for £12,000. In June 2020 Silver Ltd
was taken over by Gold Ltd and Mark received 2 ordinary shares and 1 preference share in Gold Ltd
for each ordinary share held in Silver Ltd.
Immediately after the takeover the ordinary shares in Gold Ltd were valued at £5 and the preference
shares in Gold Ltd were valued at £2.
In July 2022 Mark sold all his holding ordinary shares in Gold Ltd for £35,000.
Mark was not an employee of Silver Ltd or Gold Ltd.
Calculate the capital gain arising on the disposal in July 2022. (d)
If at takeover, some cash is also received, a capital gain will arise and needs to be calculated at
takeover for the cash element received.
Example 5 Using example 4: what di
ff
erence would it make if Mark received at takeover 2 Gold Ltd ordinary
shares valued at £5.00 each and £2 cash for each share in Silver Ltd.
Calculate the capital gain arising in June 2020 at the time of the takeover. You may now attempt Practice Questions 27 and 28
112
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