Capital gains

Capital Gains Tax (CGT) base cost for UK shareholders 

On 16 July 2007, Provident Financial plc (‘PF’) demerged its international business, and shares in International Personal Finance plc (‘IPF’), the new holding company, were listed on the main market of the London Stock Exchange. Immediately following the demerger, PF’s share capital was consolidated on the basis of one consolidated PF share for every two non-consolidated PF shares.

The aggregate base cost for the purposes of the taxation of chargeable gains of the IPF shares and the PF shares immediately after the demerger and the share consolidation should be the same as the base cost of the PF shares immediately before the demerger. Such base cost should be apportioned between the PF shares and the IPF shares held by each shareholder by reference to their respective market values on the first day on which those shares’ prices were quoted in the London Stock Exchange Daily Official List, which in this case was 16 July 2007.

Market value for these purposes is prescribed by section 272(3) of the Taxation of Chargeable Gains Act 1992. On this basis, the aggregate base cost of a total shareholding following the demerger and share consolidation is to be apportioned between the aggregate consolidated PF shares and the aggregate IPF shares as follows:

  • 64.11% to consolidated PF shares, and
  • 35.89 to IPF shares,

based upon a share price of 923.25 pence per share in PF, and 258.47 pence per share in IPF, being in each case the lower of the ‘quarter-up’ (as derived from the London stock Exchange Daily Official List) and ‘mid-point’ (being halfway between the highest and lowest prices at which bargains were recorded) prices for those shares on 16 July 2007.

A shareholder with a total shareholding of 1,000 PF shares prior to demerger having an aggregate base cost of £6,000 would, after the demerger and share consolidation, have 500 consolidated PF shares and 1,000 IPF shares with an aggregate base cost of £3,847 and £2,153 respectively (or 769 pence and 215 pence per share respectively).

It should be noted that proceeds from any fractional entitlement from the share consolidation should also be deducted in order to determine the base cost.

This information is intended for general guidance only. It does not constitute tax advice and is relevant only to individuals who are resident or ordinarily resident in the UK, beneficial owners of their shares and who hold their shares as an investment. Shareholders should take their own tax advice as appropriate.

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