Takeovers and reorganisations

In this lesson

1. 0:00 Takeovers and reorganisations explained
2. 0:25 Corporation tax treatment by consideration type
3. 1:07 Worked example: Kelly Limited share takeover
4. 2:17 Apportioning index cost between share types
5. 4:19 Calculating chargeable gain on disposal

About this lesson

You'll discover why the type of consideration matters, when gains are deferred, and how to apportion acquisition costs between different share types when a paper-for-paper takeover occurs. This is essential knowledge for the Taxation (TX) paper, where takeover scenarios frequently appear in both objective tests and longer questions. The video walks you through the key principle: if shareholders receive only shares (paper for paper), there's no immediate chargeable gain—the gain is deferred until those new shares are eventually sold. However, if any cash is received, an immediate gain arises. The crucial step is apportioning the indexed cost of the original shareholding between the shares and cash received, based on their market values at the date of takeover. You'll work through a detailed illustration involving Kelly Limited, who acquired shares in XYZ Limited and later received both ordinary and preference shares in ABC plc as consideration. The worked example shows you exactly how to split the indexed cost proportionally between the two share types, then calculate the chargeable gain when some of those new shares are subsequently disposed of. This step-by-step approach—dealing with the takeover first, then the disposal—is the method you need to master for exam success.

Duration: 5m