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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Share identification rules for capital gains tax from 6.4.2008: clogged shares

Shares are held in a separate Section 104 holding if they are acquired as an employee on terms which restrict their right to dispose of them, TCGA92/S104(4). This applies to any employee, not merely an employee of the company issuing the shares. Such shares are known as ‘clogged shares’.


If the taxpayer holds `unclogged shares’ (in other words, shares which he acquired otherwise than as an employee with restricted disposal rights) as well as clogged shares, there is no rule for identifying whether it is clogged or unclogged shares which have been disposed of. In practice it should be possible to identify as a matter of fact which shares have been sold. If it is not possible to identify whether clogged or unclogged shares were sold you should accept the taxpayer’s allocation. For further details on employee share schemes, see CG56300+. However, if the restrictions on the rights to dispose of the clogged shares are lifted before the date of disposal for CGT purposes then they will have become part of the section 104 holding of unclogged shares at the time of the disposal.

“Clogged” shares become part of the main S104 holding when the restrictions on the rights to dispose of are lifted (or lapse). Holdings of shares with different restrictions form separate pools for capital gains purposes. Shares that have the same restriction that applies for different periods form a single pool. For example, shares are issued to an employee that cannot be sold for 3 years; they are issued at 6 monthly intervals so the restrictions end at various dates. All the shares that are for the time being subject to the restriction should be treated as a single holding.