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HMRC internal manual

Capital Gains Manual

Share identification rules for corporation tax: section 104 holding: disposals 30/11/93+: example

  • January 2005 the taxpayer buys 10,000 shares in A Ltd for £100,000.
  • January 2013 the taxpayer sells 5,000 of the shares for £60,000. The allowable costs of disposal are £4,000.

SECTION 104 HOLDING

  Number of shares Pool of qualifying expenditure Pool of indexed expenditure
       
January 2005 Purchase 10,000 £100,000 £100,000
Indexation £100,000 x 0.301     £30,100
         
         
    10,000   £130,100
  January 2013 Disposal (5,000) (£50,000) (£65,050)
    5,000 £50,000 £65,050

 

Capital Gains Tax Computation

 

Pool of indexed expenditure £131,300 x 5,000/10,000 £65,050
         
Pool of qualifying expenditure £100,000 x 5,000/10.000 £50,000
         
Indexation       £15,050

 

    £
     
Disposal proceeds   60,000
less Cost 50,000  
Cost of disposal 4,000 54,000
Unindexed gain   6,000
less Indexation   6,000
CHARGEABLE GAIN    
    NIL

 

 

Only £6,000 of the £15,050 indexation attributable to the disposal has been used in the computation. But the indexed pool of expenditure is reduced by the full amount of the £15,050 (plus cost).