Does a cost basis adjustment in foreign shares create taxable income?

[mbanth]

I wish to understand the UK tax treatment of a change in cost basis of foreign shares. Can someone here please help me.

I'm a US citizen living long-term in the UK. Consequently I file both a Self Assessment return in the UK and an Income Tax return in the US.

I own shares in a US company. In September 2017 that company spun-off a subsidiary. On the same day as the spin-off, the subsidiary merged with a UK company. The resulting merged company is UK based.

As a result of the spin-off and merger I received American Depository Shares (ADSs) in the UK company. These shares are dollar-denominated, held in a US brokerage account and traded on a US exchange. According to information I received from the US company, technically I received 1 share in the subsidiary for each share I held in the US company. Each share in the subsidiary was then exchanged for a fractional ADS. The subsidiary was never publically traded.

Under US tax law, the merger resulted in a change in the cost basis of the ADSs. The adjusted cost basis of each share equals the share's fair market value on the date of the merger. I had to report the difference between the original cost basis, which was a percentage of the cost basis in the US company shares, and the adjusted cost basis as income on my US 2017 Income Tax return.

Now I'm preparing my UK Self-Assessment for 2017-18. My question: does UK tax law treat the change in cost basis as taxable income?

Kind thanks in advance for any help you can provide.

[DavidTreitel]

Sounds from the published legal opinion that you are recognising gain rather than income: https://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017.pdf

You'd want to treaty resource the gain on the 2017 US return (on a treaty resourced Form 1116) if there is UK tax on the gain. If you are unclear on the UK tax position on the transaction and the company does not have a legal opinion you may wish to engage a lawyer yourself to advise on the UK tax consequences.