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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Shares acquired on same day: election for alternative treatment: outline

Under TCGA92/S105(1)(a), see CG51560 (CGT) and CG51610 (Corporation Tax), all shares of the same class in the same company, which are acquired in different transactions on the same day by the same person in the same capacity, are treated as acquired by one transaction. In effect, the shares are pooled and their average cost is taken into account in any disposal calculations.

This averaging of costs can have an unintended effect when some of the shares are acquired through a Company Share Option Plan (CSOP), an SAYE share option scheme or Enterprise Management Incentives (EMI). When shares are acquired in this way, there is normally no, or only a limited, Income Tax liability on exercising the option and as a consequence the cost of the shares for Capital Gains Tax purposes may be lower than the cost of other shares acquired on the same day, for example, by purchase in the open market or by exercising an option under an unapproved employee share scheme.

TCGA92/S105A and TCGA92/S105B enable an individual to elect to treat certain approved employee share option scheme and EMI shares as acquired by a separate transaction from other shares and as disposed of after other shares acquired on the same day. This alternative treatment applies only where the individual elects for it.

The main purpose of these provisions is to allow an individual to avoid the Capital Gains Tax charge that would otherwise arise where he or she disposes of some of the shares acquired on the same day. For example, in order to raise funds to meet an Income Tax liability where shares have been acquired by exercising an unapproved employee share option, a taxpayer may sell some of the shares. Taxpayers must decide whether an election is to their advantage.