At the beginning of last month, the giant beer takeover of SABMiler by Anheuser-Busch InBev went ahead for £79 billion. For the investors of SABMiler, this takeover has provided a handsome pay-out. Each investor in SABMiler, depending on their preference received £45 for every share they owned or £4.6588 in cash and
0.483969 restricted shares.
Whilst shareholders have received a premium of more than 50% as compared to the stock price the day before the takeover deal was announced, they are capital gains tax consequences for those investors who did not hold their shares in a tax shelter such as a Pension or ISA.
Capital Gains Tax consequences of the cash offer
For the investors that chose the cash offer of £45 a share, the Capital Gains Tax figure you need to pay is straight forward. It is simply the amount you receive (Consideration) less the Acquisition Price and any dealing charges. This will give you the gain which you can then apply your relevant Capital Gains Tax banding.
As an example, if you bought 100 shares of SABMiller for £20 each and paid a dealing cost of £10, your gains would be as follows:
Amount Received – Acquisition cost – Associated Costs = Gain
£4,500 – £2,000 – £10 = £2,490
Capital Gains Tax consequence of the stock and cash offer
For those investors that chose the cash and share mix, the calculation is a little more tricky. In this case the capital gain calculation will depend on the sale price of the new shares you have received.
So if you bought 100 SABMiller shares at £20.00 each, your Acquisition Cost would be £2,000. If you received mixed offer of £4.658 and 0.483969 shares per SABMiller share, you would have £465.8 in cash and 48.3969 in new shares.
At the date of the deal, the value of the 0.483969 new shares was £46.48. Thus if you had to sell all those 100 new shares on that date, you would receive £4,648. Thus your gain would be:
Total Consideration (£4648 + 465.8 ) – Acquisition Cost (£2000) = £3113.8 Gain.
You would then multiply the £3113.8 to your relevant Capital Gains Tax banding to find the amount you need to pay. In the above calculation, you can also subtract your dealing charges when you bought the stock. You should also remember that you have a Capital Gains allowance of £11,100 meaning that if you have gains under this in any one tax year, you do not have to pay any tax!
Keeping the shares under the shares and cash offer.
Whilst the above example is how you would treat your capital gain if you had to sell the new shares you received in the takeover, the tax treatment would be different if you simply chose to keep the shares.
The way your tax is calculated in this instance depends if the amount of cash you receive is small. In essence, cash is considered small if it is below 5% of the overall value of your holdings or less than £3000.
If your cash holdings are small, you simply reduce your initial acquisition cost by the cash amount. You would treat the cash received almost like a return of capital. For example, say you bought your SABMiller shares for £2000 and subsequently received £465.8 in cash as above. As £465.8 is below £3000 it is small. Thus all you need to do is reduce your acquisition cost by £465.8 when you eventually sell the new shares received in the takeover. So your new Acquisition cost has become £2000 – £465.8 = £1,534.2. Your gain is ‘rolled over’.
If on the other your cash amount is not small, you cannot roll over the gain. You’ll have to pay capital gains on the amount of cash you receive. for an example of this, have a look at my article on Shells takeover of BG.
The tax consequences of a takeover can be complicated. But if you are playing with small amounts, there should be no tax to pay as UK residents have a tax free capital allowance amount of £11,100 a year. Furthermore, if you held these shares in an ISA or a Pension (SIPP) there will be no tax to pay as well. As always, if you are unsure what to do, please seek the advice of a tax professional. The last thing you would want is HMRC knocking on your door!