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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Taxation of the investment return: investment gains: accounting periods beginning on or after 1 January 2002: transition from realisation basis: identification of part realisations

Many of the assets to which the change of basis applies will be shares, and it would be impracticable to require companies to track which holdings of a particular share were acquired after 1 January 2002 and which on or before that date.

Accordingly, FA02/S65 (3) provides that where

  • a company realises assets in an accounting period beginning on or after 1 January 2002 of a type, such as shares, where the particular assets are not readily identifiable
  • the realisation does not exhaust its holding of that asset, and
  • some but not all the holding was acquired after 1 January 2002

the assets realised are identified with assets held on the same basis as is used in the accounts, so long as that basis is not last-in, first-out (’LIFO’).

Most companies are believed to use an average cost basis to compute profits on part realisations.

If LIFO is used in the accounts, then for tax purposes realisations are identified with acquisitions on or before 1 January 2002 in priority to later acquisitions.