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HMRC internal manual

Capital Gains Manual

Share identification rules: introduction

One feature of shares is that unless they are numbered, and most shares are not, all shares of the same class in the same company are identical. The problem this causes can be illustrated quite easily. In 2010 Mr A bought 1,000 shares in B PLC at a price of £2.50 per share. He bought a further 500 shares in 2005 at £3 per share. He has now spent £4,000 on 1,500 shares. In 2010 he sold 250 shares for £4 each. To work out the capital gain you need to know which shares the taxpayer sold and how much they cost.

The issue does not just arise with shares but with any assets that are not distinguishable from each other or are dealt with as if they are. The share identification rules therefore also apply to such assets TCGA92/S104(1)(3)(ii). Se CG11820.

The rules also even if in practice the separate assets are identifiable, say by their numbers, TCGA92/S104(1).

This chapter deals with the special rules which have been introduced to deal with this problem. Historically the usual approach has been to pool the cost of the shares, but over the years there have been a number of important changes. In particular, pooling was ended for individuals and others liable to Capital Gains Tax (but not for companies within the charge to Corporation Tax) in 1998. That was because pooling was not consistent with the application of taper relief.

The Simplification of Capital Gains Tax in 2008 brought about the reintroduction of pooling and ended the need to keep track of separate holdings of shares depending on when they had been acquired.

The 2008 changes swept away the need to distinguish between various holdings of shares over time for the purposes of Capital Gains Tax.

This chapter was revised in 2014. It is divided into two parts -

Part A deals with the rules for Capital Gains Tax that apply to disposals on or after 6 April 2008.

Part B deals with the rules that apply for Corporation Tax as at 2014 (and have changed very little in recent years) . It briefly covers historical legislation that may still affect the computation of gains on disposals by companies in 2014.

This section the manual used to include guidance on the issues that arise when the value of a holding of unquoted shares at March 1982 needs to be agreed. That can now been found with the general guidance on valuation at CG58580-84.

Detailed guidance on superseded identification rules is no longer included in this manual. If you need to consider the deleted guidance then this is available from commercial tax information packages or directly from Capital Gains Technical Group.

It should be emphasised that the share identification rules apply for the purpose of computing the gain on a disposal of shares. It is possible for holding to contain shares whose disposal may not result in a chargeable gain or may be subject to some other special treatment. In some cases the usual identification rules are replaced by a special rule. For example, shares in respect of which there has been a claim to deferral relief under the Enterprise Investment Scheme, see VCM23160.

Where there is no statutory rule for identifying which shares have been disposed of for a purpose other than the calculation of the gain then the allocation shown in the return should be accepted provided adequate records are kept so that the identification of later disposals is consistent with what has gone before.