CGT and Company Liquidation

[XFool]

Does anyone have any pointers into how to deal with CGT calculations involving a delisted company that is being liquidated? The liquidation consisting of a series of liquidation payments over more than one tax year. These payments are of course in relation to the whole number of the delisted shares held, so how is the original cost (of the entire holding) dealt with in this case? Any help appreciated.

TIA.

[PinkDalek]

Assuming the Statement of Practice D3 linked below is still applicable, this should give you something to chew on:

https://www.gov.uk/government/publicati ... ractice-d3

Commencing:

1. During the liquidation of a company the shareholders often receive more than one distribution. For Capital Gains Tax each distribution, other than the final one, is a part disposal of his shares by the shareholder, and the residual value of the shares has to be ascertained in order to attribute a proportion of the cost of the shares to the distribution (unless the inspector accepts that the distribution is ‘small’ and can therefore be deducted from cost). ...

Para 2 will also be of interest.

Do you feel able to name the company/ies in liquidation (initially in an ISA/PEP)? I ask as there may be plenty of information from the Liquidator at https://beta.companieshouse.gov.uk/.

[PinkDalek]

No time to research in detail but, as an add on, somewhere or other on your other thread you mentioned it was an Investment Trust that went into liquidation.

Following this link https://www.gov.uk/guidance/stocks-and-shares-investments-for-isa-managers#shareinv will find:

The investments that managers may purchase, make or hold in a stocks and shares ISA (‘qualifying investments’) are: ...

Shares, other than shares in an investment trust, are qualifying investments if:
they’re issued by a company (see below) that is incorporated anywhere in the world
they’re:
either officially listed on a recognised stock exchange ...

Then move on to https://www.gov.uk/guidance/stocks-and-shares-investments-for-isa-managers#qualtrusts

Perhaps your Investment Trust holding still qualified as being in an ISA/PEP, despite being in liquidation, if the other criteria still holds.

[PinkDalek]

I'm still assuming this topic relates to holdings that were previously in an ISA/PEP. if not, I've probably already covered the position.

[so how is the original cost (of the entire holding) dealt with in this case?

Again to add something I've found this evening:

The Individual Savings Account Regulations 1998
https://www.legislation.gov.uk/uksi/1998/1870/regulation/34/made

34.—(1) For the purposes of capital gains tax on the occasion when the title to account investments is transferred from an account manager to an account investor there shall be deemed to be a disposal and reacquisition by the account investor of those investments for a consideration equal to their market value at the date of the transfer. and onwards.

It is that market value you need to establish (probably from the ISA manager) and use for the later part disposals (the liquidation distributions). Your original costs within the ISA/PEP are disregarded, as would be any capital gain or loss therein.

[XFool]

Thanks very much PinkDalek for all the information.

Regarding the situation with the ISA, I fear the commonsense view might be correct and it may be the ISA manager made a mistake in not correctly processing this or bringing to my attention the consequences of the delisting (unlike HSDL) - or taking my (presumed) query about liquidation payments into the ISA as an 'instruction' to do so. But I will have to hear what HMRC say.

OTOH, in the other thread, Dod101 said he had no problem with the liquidation of an investment trust and the proceeds going into the ISA.

WRT CGT, thanks for the link. If only I could fully understand it! Perhaps part 2 is relevant:

https://www.gov.uk/government/publications/statement-of-practice-d3/statement-of-practice-d3

2. Where the shares of a company are unquoted at the date of the first or later interim distribution, therefore, the HMRC Commissioners are prepared to authorise inspectors to accept any valuation by the taxpayer or his agent of the residual value of the shares at the date of the distribution, if the valuation appears reasonable and if the liquidation is expected to be completed within 2 years of the first distribution (and does not in fact extend much beyond that period). The valuation need not include a discount for deferment; and if the distributions are complete before the Capital Gains Tax assessment is made, HMRC will accept that the residual value of shares in relation to a particular distribution is equal to the actual amount of the subsequent distributions. In the normal way HMRC will not raise the question of Capital Gains Tax on an interim distribution until after 2 years from the commencement of the liquidation unless the distribution, together with any previous distributions, exceeds the total cost of the shares.

Sadly I may have made a rod for my own back here simply by trying to understand the situation. Nobody directly involved had drawn it to my attention (apart from HSDL in the case of their ISA) or complained of anything being wrong. I may ask HMRC if I can go ahead and submit my 'simple' tax return for this year and try to sort out any possible problems, with it and last year's return, separately.

[PinkDalek]

[OTOH, in the other thread, Dod101 said he had no problem with the liquidation of an investment trust and the proceeds going into the ISA.

That other thread being here viewtopic.php?p=167620#p167620.

WRT CGT, thanks for the link. If only I could fully understand it! Perhaps part 2 is relevant:

https://www.gov.uk/government/publications/statement-of-practice-d3/statement-of-practice-d3

Yes, that's why I said 'Para 2 will also be of interest' (your part 2 is more correct).

In your emboldened part, the reference to total cost of the shares may be misleading. In your case you should be looking at HMRC will accept that the residual value of shares in relation to a particular distribution is equal to the actual amount of the subsequent distributions.

Those subsequent distributions forming the effective (ex ISA/PEP) base cost of your unsheltered asset, if I've understood it all correctly.

Sadly I may have made a rod for my own back here simply by trying to understand the situation.

You may say that but I couldn't possibly comment other than I'd probably do the same as you in attempting to research the position (although I'd leave HMRC out of it unless absolutely necessary)

[XFool]

In your emboldened part, the reference to total cost of the shares may be misleading.

I was more interested in the "two years":

In the normal way HMRC will not raise the question of Capital Gains Tax on an interim distribution until after 2 years from the commencement of the liquidation

In your case you should be looking at HMRC will accept that the residual value of shares in relation to a particular distribution is equal to the actual amount of the subsequent distributions.

Those subsequent distributions forming the effective (ex ISA/PEP) base cost of your unsheltered asset, if I've understood it all correctly.

I'm afraid I don't understand that. Will have to investigate further.