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HMRC internal manual

Capital Gains Manual

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Share identification rules for capital gains tax from 6.4.2008: examples

The following examples illustrate how acquisitions and disposals of shares are treated for Capital Gains Tax purposes in 2008-09 and later years. The examples are similar to those used in CG50579 below (those examples apply for disposals from 6 April 1998 to 5 April 2008).

In each example it should be assumed that all acquisitions and disposals are arm’s length transactions in shares listed on the stock exchange. The shares are all of the same class in the same company and held by a UK taxpayer in the same capacity. Figures for disposal proceeds are net of incidental costs of disposal.

EXAMPLE 1

Ms Davy makes the following acquisitions and disposals

  • on 15 April 2006 she buys 1,000 shares for £1,300
  • on 4 August 2006 she buys another 1,000 shares for £1,450
  • on 19 January 2007 she buys a further 500 shares for £950
  • on 16 March 2010 she sells 2,000 shares for £6,850
  • on 7 April 2010 she buys another 2,000 shares for £6,790
  • on 10 December 2010 she sells 2,200 shares for £7,700.

Some of Ms Davy’s purchases were made before 5 April 2008, but her disposals are made after that date so the pooling arrangements apply. Under TCGA92/S106A, see CG50464, her disposals must be identified with acquisitions in the following order

  • disposal on 16 March 2010 - this is matched with the 2,000 shares acquired on 7 April 2010. A gain £60 (£6,850 - £6,790) arises. Because the shares bought on 7 April are identified under the “bed and breakfast” rule, they do not enter the pool.
  • disposal on 10 December 2010 - this is a part disposal from the Section 104 holding.

Before the disposal, the Section 104 holding comprised the following -

Shares: 1,000 + 1,000 + 500 = 2,500
Cost: £1,300 + £1,450 + £950 = £3,700

Ms Davy sold 2,200 out of 2,500 shares so on a simple apportionment the shares sold have a cost of £3,256. Her chargeable gain is therefore £7,700 - £3,256 = £4,444.

The Section 104 holding remaining after the disposal comprises 300 shares at a cost of £444.

EXAMPLE 2

Mr Browne makes the following acquisitions and disposals

  • on 17 August 2008 he buys 10,000 shares for £2,500
  • on 1 April 2009 he buys 10,000 shares for £2,600
  • on 8 October 2009 he takes up a 1 for 5 rights issue at a cost of £960, and receives a further 4,000 shares
  • on 10 December 2012 he sells 7,500 shares for £3,000.

The 1 for 5 rights issue is a reorganisation of the company’s share capital to which TCGA92/S127, see CG51700+, applies. The rights issue shares and their cost are simply added to the Section 104 holding.

Shares: 10,000 + 10,000 +4,000 = 24,000
Cost: £2,500 + £2,600 + £960 = £6,160

Mr Browne sold 7,500 out of 24,000 shares so on a simple apportionment the shares sold have a cost of £1,925. His chargeable gain is therefore £3,000 - £1,925 = £1,075.

The Section 104 holding remaining after the disposal comprises 16,500 shares at a cost of £4,236.

EXAMPLE 3

Mrs Mountain makes the following acquisitions and disposals

  • on 27 May 1979 she buys 7,500 shares for £18,750. These were worth £21,000 on 31 March 1982
  • on 6 February 1988 she buys another 4,000 shares for £16,500
  • on 28 July 1993 she buys another 4,000 shares for £17,000
  • on 31 March 2005 she buys another 6,000 shares for £29,000
  • on 13 June 2013 she sells 16,500 shares for £114,675.

Up to 5 April 2008, Mrs Mountain’s 1979 purchase formed a 1982 holding, the 1988 and 1993 purchases together formed a Section 104 holding and the 1999 purchase were treated as a number of individual assets.

These distinctions are not relevant in calculating the chargeable gain on the disposal in 2013.

Before the disposal, the Section 104 holding comprised the following -

Shares: 7,500 + 4,000 + 4,000 + 6,000 = 21,500
Cost: £21,000 (market value at 31 March 1983 replaces cost for shares held on that date) + £16,,500 + £17,000 + £29,000 = £83,500

Note that the costs carried from the “old” Section 104 holding do not include indexation.

Mrs Mountain sold 16,500 out of 21,500 shares so on a simple apportionment the shares sold have a cost of £64,081. Her chargeable gain is therefore £114,675 - £64,081 = £50,594.

The Section 104 holding remaining after the disposal comprises 5,000 shares at a cost of £19,419.

EXAMPLE 4

The trustees of the Peninsula Trust make the following acquisitions and disposals

  • on 24 September 1997 they buy 15,000 shares for £6,750
  • on 30 January 2001 they take up in full a 3 for 5 rights issue at 40p a share, receiving an extra 9,000 shares for £3,600
  • on 14 June 2004 they buy a further 12,000 shares for £13,800
  • on 26 November 2005 they take up in full a further 1 for 4 rights issue at 105p per share, receiving another 9,000 shares for £9,450
  • on 23 February 2010 they sell 20,000 shares for £39,000.

Up to 5 April 2008, the shares acquired on 24 September 1997 together with those acquired in the rights issue on 30 January 2001 and some of those acquired in the rights issue on 26 November 2005 formed a Section 104 holding. The shares acquired in June 2005 and the remaining shares acquired in the rights issue in November 2005 were treated as a number of individual assets.

These distinctions are not relevant in calculating the chargeable gain on the disposal in 2010. In particular, it is not necessary to break down the second rights issue to arrive at the trustees’ chargeable gain on this disposal.

Before the disposal, the trustees’ Section 104 holding comprised the following -

Shares: 15,000 + 9,000 + 12,000 + 9,000 = 45,000
Cost: £6,750 + £3,600 + £13,800 + £9,450 = £33,600

Note that the costs carried from the “old” Section 104 holding do not include indexation.

The trustees sold 20,000 out of 45,000 shares so on a simple apportionment the shares sold have a cost of £14,934. Their chargeable gain is therefore £39,000 - £14,934 = £24,066.

The Section 104 holding remaining after the disposal comprises 25,000 shares at a cost of £18,666.