The stock market invariably thinks that X and XX separately are worth more than the original X when it owned XX You’ve got two pieces of paper which can be sold separately. But if you take those XX shares, you’ve disposed of some of your interest in X so does that mean CGT?Again, the starting point is a yes answer but in practice the answer is no As with takeovers, there is a relief around. They’ll sell the shares on back to the company and you can use your CGT annual exemption. But if you’re already paying CGT, the dividend route may be better.A third option that X may announce may be a demerger. If you sell the shares to the company you might expect to get a CGT charge. In fact you normally wouldn’t: it would be treated as income.

This is because you’re getting value out of the company and usually when value comes out it’s treated as a distribution – a dividend if you prefer.ACT will be paid by the company; you will be treated as if you received a dividend with a tax credit along the lines of that ACT. The quirk is that the dividend you’re treated as receiving depends on the original subscription price of the shares.You can get a CGT result by selling the shares to a broker. This is why share buyback offers usually come with a tame broker ready to buy back your shares. Now you’re going to have to be careful – you do need to read that paperwork they send through.

All of these make it possible to sell your resultant holding over a number of years and make the most of the CGT annual exemptions.It’s possible that X makes you a different offer They’d like to buy back your shares. But take shares in Y instead of the cash and in most circumstances there’s no immediate CGT. The Y shares will in effect step into the shoes of the X shares as far as you’re concerned.Of course, if you get a mix of cash and shares, that means some gain now, some later If you get loan stock, that will also hold over the gain. Are you going to suffer tax if you accept this offer?
If you give up your X shares to Y, you’ve disposed of the shares. That means in principle that capital gains tax is looming on the value you’ve received If you get cash, that’s it – CGT bites. Often these are stated as tax efficient, but why are they, and how are the shareholders affected?

Let’s suppose that you’re a shareholder in X plc and you’ve just got a “this document is important – if in any doubt consult your tea leaves” type of mailing It seems that Y plc has made an offer for X.