Stock merger plus cash payment

[Iamyourfriend]

Hi.

I owned 1 share in company A which merged with company B to become company C

For 1 Share of company A I got 1 share of company C and 500 euro

Is that 500 euro taxed as income, or is it capital gains?
If I sell my share of company C in future, is my cost basis the same as ever?

 

[ClubMan]

What is the nature of the €500 payment?
How is it described?
Is it, for example, a return of capital, return of value, distribution, dividend etc.?

 

[AAAContributor]

Is that 500 euro taxed as income, or is it capital gains?

It is neither income (unless described as a special dividend) nor a capital gain.

It is treated as consideration/proceeds relating to a part-disposal of the original shareholding.

For the sake of example, let's say:

Co. A cost basis = €1,000

Co. C value at the effective date of the merger = €750

You've received €500 cash consideration relating to a part disposal of Co. A.

You need to use the part disposal formula C x ( A / (A + B) ) to determine what part of the cost of Co. A is to be allowed in the computation of your CGT liability (if any), where:

A = cash received (€500)
B = value of Co. C at the time of the corporate action (€750)
C = original cost of Co. A (€1,000)

1,000 x (500 / (500 + 750) = €400

CGT computation:
Consideration received = €500
Cost for part disposal = €400
Chargeable gain = €100

If I sell my share of company C in future, is my cost basis the same as ever?

The allowable cost is the remainder of the cost of Co. A after deducting the amount allowed above (€400) for the part-disposal, therefore resulting in a cost basis of €600 for any future disposal.

See Example 2 on Page 3 of the relevant Revenue Guidance on the topic.