What is the tax implication when a takeover involves both shares and cash?

When a takeover involves both shares and cash, the treatment of cash received is primarily governed by capital gains tax legislation. The receipt of cash in such a transaction is considered a part-disposal of the shares held by the shareholder. This means that the cash portion received is treated as if the shareholder has disposed of part of their investment in the shares.

As a result of this part-disposal, the shareholder may realize a capital gain or loss, depending on the total consideration received compared to the shareholder's base cost in the shares. The remaining shares held will continue to form part of the investment, with the base cost being adjusted to reflect the part-disposal.

Understanding this concept is crucial because it highlights that the cash component does not simply create taxable income but instead affects the capital gains calculation. This knowledge is essential for determining the appropriate tax implications for shareholders involved in similar transactions.