Taxation of Chargeable Gains Act 1992 section 123

Disposal of right to acquire shares or debentures

Section 123 deals with the tax treatment when a shareholder sells or renounces their provisional allotment rights (nil-paid rights) received during a rights issue, treating the proceeds as a capital distribution from the company.

• When a shareholder receives a provisional allotment of new shares or debentures through a rights issue and sells those rights, the sale proceeds are treated as a capital distribution from the company in respect of the original shares.
• The disposal is treated not as a sale of the rights themselves, but as a disposal of an interest in the original shares that gave rise to the allotment.
• This treatment brings the transaction within the capital distribution rules of section 122, which may result in either a part disposal of the original shares or a reduction in their base cost.
• The same rules apply equally to rights received in respect of debentures (loan stock) as they do to rights received in respect of shares.