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HMRC internal manual

Capital Gains Manual

Share identification for corporation tax: relevant securities: background

TCGA92/S108 deals with securities for which a pooling system of averaging costs for certain securities is not appropriate because it is necessary to identify separate acquisitions. This would not be possible if the securities had lost their identity in a pool. Section 108 identifies and defines these securities as “relevant securities”.

Rule applies for corporation tax purposes only

For persons within the charge to capital gains tax pooling of shares was ended for acquisitions of shares on or after 6 April 1998 and then reintroduced from 6 April 2008. For general guidance on the capital gains tax share identification rules for 2008-09 onwards, see CG51550+.

The separate regime in Section 108 no longer applied for capital gains tax from 6 April 1998. For disposals from 6 April 2008 the capital gains tax identification rule for relevant securities is to be found in TCGA92/S106A(6), see CG51565.

The basic rules of TCGA92/S108 are that

  • acquisitions are not pooled
  • disposals are identified first against acquisitions in the previous twelve months on a first in/first out basis and then
  • against acquisitions made more than twelve months earlier on a last in/first out basis.

The reason for this method of identification is purely historical. TCGA92/S108 adopts the same rules included in FA82 to cope with the introduction of indexation allowance. Originally indexation allowance was only available after an asset had been held for twelve months and could not be used to create or increase a loss. Therefore, to prevent indexation allowance being given when it was not due disposals had to be identified not only against specific acquisitions but also against acquisitions in the previous twelve months.

This system which was designed to apply to all shares and securities was ideally suited to cope with a number of securities introduced into the tax system between 1982 and 1985 for which pooling would be inappropriate. When FA1985 reintroduced pooling the 1982 rules were left in place for such securities. For further details about the 1982 system see CG51630+.