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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Share identification rules: the 10 day rule: examples

The following examples illustrate the operation of the ten day rule. In Example 1 all the shares sold are identified against an acquisition in the ten day period. In Example 2 only some of the shares sold are identified against acquisitions in the ten day period.

EXAMPLE 1

  • March 2010 a company buys 1,600 shares in C Ltd at a cost of £2.00 per share.
  • 26 September 2013 the company buys a further 1,000 shares at a cost of £10.00 per share.
  • 2 October 2013 the company sells 500 shares at a price of £10.50 per share.

SECTION 104 HOLDING

  Number of shares Pool of qualifying expenditure Indexed pool of expenditure
       
STEP 1 1,600 £3.200 £3,200
The acquisition on 26 September is an operative event      
£3,200 x 0.083 -     £266
  1,600 £3,200 £3,466
STEP 2      
Compute the capital gain on the disposal on 2 October.      
Add the balance of the cost of the new shares to both pools 500 £5,000 £5,000  
    2,100 £8,200 £8,466

CAPITAL GAIN

The disposal on 2 October is identified solely against the acquisition on 26 September. No indexation allowance is due.

      £
       
Disposal proceeds     5,250
less Cost £10,000 x 500 5,000  
  1,000    
Cost of disposal   50 5,050
CHARGEABLE GAIN     200

This example illustrates how the ten day rule works to the company’s advantage. If the acquisition in September was included in the Section 104 holding the gain would be £3,553 (not illustrated) because the lower cost of the shares in 1987 would reduce the average cost of the shares in the pool.

EXAMPLE 2

  • March 2010 a company buys 1,600 shares in D Ltd at a cost of £3.00 per share.
  • 29 August 2013 the company buys a further 400 shares at a cost of £10.00 per share.
  • 3 September 2013 the company sells 600 shares for £10.50 per share.

CAPITAL GAIN

The capital gain is made up of two elements.

  1. The disposal of 400 shares is identified against the acquisition on 29 August. No indexation is due on this disposal.
    £
     
Disposal proceeds   4,200
less Cost 4,000  
Cost of disposal 50 4,050
CHARGEABLE GAIN   150
  1. The disposal of 200 shares is identified against the new holding
Pool of indexed expenditure £5,198 x 200 £650
         
      1,600  
         
Pool of qualifying expenditure £4,800 x 200 £600
      1,600  
Indexation       £50
  £
   
Disposal proceeds 2,100
less Cost 600
Unindexed gain 1,500
less Indexation 50
CHARGEABLE GAIN 1,450

TOTAL GAIN £150 + £1,450 = £1,600

SECTION 104 HOLDING

All shares acquired in August are identified against the disposal. Therefore, there is no operative event in that month.

200 of the shares disposed of in September are identified against the Section 104 holding holding. This is an operative event.

SECTION 104 HOLDING

  Number of shares Pool of qualifying expenditure Indexed pool of expenditure
       
STEP 1      
Acquisition March 2010 1,600 £4,800 £4,800
STEP 2      
The disposal in September 2013 is an operative event      
£4,800 x 0.083     £398
  1,600 £4,800 £5,198
STEP 3      
Reduce both pools by the apportioned amounts of cost and indexation (200) (£600) (£217)
  1,400 £4,200 £4,981