LLM6200 - Conversion: Schedule 20A FA93: Nameco conversions: syndicate capacity

FA93/SCH20A/PARA3 applies to the net chargeable gains (that is, net of allowable losses) on the disposal of all syndicate capacity by the Name to the Nameco. Where the Name makes a claim, the lesser of

• the net chargeable gains, and
• the acquisition cost, for CGT purposes, of the shares issued by the company in consideration for the transfer of the syndicate capacity

is rolled over against the cost of those shares.

The relief operates in broadly the same manner as TCGA92/S162, by “rolling over” the gain against the cost of the shares. The amount of the rolled over gain is apportioned between the shares (or any asset derived from the shares), and if the shares are not all of the same class, the apportionment is made by reference to the respective market values of the different shares issued.

Example

An individual Name converts to underwriting via a successor company with effect from the 2005 underwriting year. The Name transfers syndicate capacity to the company. A chargeable gain of £10,000 (before any roll-over relief) accrues for CGT purposes on the disposal by the Name to the company. The Name receives shares with a cost (for CGT purposes, and before any roll-over relief) of £25,000 as consideration for the transfer of syndicate capacity. All relevant conditions for relief are met and the Name makes a claim to relief.

The effect of the relief is that

• the chargeable gain of £10,000 is reduced to nil, eliminating any possible liability to CGT on the disposal of syndicate capacity
• the gain of £10,000 is “rolled over” onto the consideration shares and the Name is treated as acquiring them at a reduced cost of £25,000 - £10,000 = £15,000.

If the Name sells the shares at a later date for, say, £40,000 the gain on sale will be £40,000 - £15,000 = £25,000 (and not £40,000 - £25,000 = £15,000, as it would have been if no roll-over relief had been claimed).