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HMRC internal manual

Capital Gains Manual

Share identification for corporation tax: shares held at 6 April 1965: background

The charge to tax on chargeable gains was introduced by Finance Act 1965 and provision was made to avoid taxing gains to the extent that they represented the growth in value of assets before that date.

Whether the rules for shares held on 6 April 1965 need to be considered will depend on whether the company has made an election under TCGA92/S35(5) out of the “kink test”. If so, the company is treated as though it sold and immediately reacquired their shares at market value on 31 March 1982. Therefore all shares held on that date, whether quoted or unquoted, held on 6 April 1965 or representing a 1982 holding will have the same value per share at 31 March 1982. This means that for any a part disposal of the shares held on 31 March 1982 the allowable cost will be simply the proportion which the shares disposed of bear to the cost of all the shares held on that day and there is no need to consider time apportionment or any of the other detailed rules which apply to the disposal of shares held on 6 April 1965.

A company can make an election under TCGA92/SCH2/PARA4 or TCGA92/S109 (4) to have quoted securities held on 6 April 1965 included in the 1982 holding. Such an election has little practical effect if there is an election under TCGA92/S35 (5) out of the kink test. See CG51633.

The separate identification of shares held since 1965 ceased to apply for persons within the charge to capital gains tax from 6 April 2008.

The rules for shares held on 6 April 1965 will therefore be of practical relevance only in the case of a company which still owns such shares and has not made an election out of the kink test so that it is necessary to compute a gain by reference to original cost of those shares. Because of the limited and reducing number of companies affected this guidance only gives an outline of the main rules. More detailed guidance can be found in the deleted pages CG50970 onwards, which are available from commercial tax information packages of directly from Capital Gains Technical Group.