This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Venture Capital Schemes Manual

VCT: investor CG deferral relief: share identification rules

TCGA92/SCH5C/PARA4 (2) & (3)

Disposals are identified:

  • on a first in/first out basis,
  • if relief and non-relief shares are acquired on the same day the non-relief shares are treated as disposed of first.

For the purposes of making this identification the share pooling rules which apply to TCGA92/S104 holdings of shares are ignored. You will have to identify as a question of fact when the shares in the Section 104 holding were acquired.


An investor has the following transactions in the shares of A plc, an approved VCT:

  • March 1996 buys 10,000 shares cost £15,000. These shares do not qualify for disposal relief because the permitted maximum for the year 1995-96 has already been exceeded.
  • May 1996 buys 40,000 shares for £60,000.
  • September 1996 subscribes £80,000 for 120,000 shares.
  • June 1997 sells 125,000 shares for £150,000.

The investor received ‘front-end’ income tax relief on the subscription of £80,000 made in September 1996. £60,000 CGT deferral relief on the disposal of a piece of land in December 1996 is claimed.

You have to consider two separate computations for CGT purposes:

  1. Disposal relief and the capital gain on the disposal of the VCT shares.
  2. Deferral relief and the claw back of the deferred gain on the land.

Disposal relief

The 40,000 shares purchased in May 1996 and £40,000 worth of the shares subscribed for in September 1996 qualify for disposal relief. These shares are not pooled, VCM52050.

The investor also has a Section 104 holding of 70,000 non-exempt shares, 10,000 purchased in March 1996 and 60,000 subscribed for in September 1996.

The disposal is identified on a first in/first out basis, VCM52070, as follows:

10,000 shares acquired March 1996 not exempt
40,000 shares acquired May 1996 Exempt
60,000 shares acquired September 1996 not exempt
15,000 shares acquired September 1996 Exempt

Section 104 holding

  Number of Shares   Pool of Qualifying Expenditure   Pool of Indexed Expenditure
March 1996 10,000   £15,000   £15,000
*Indexation March 96-Sept 96         £225
September 1996 60,000   £40,000   £40,000
  70,000   £55,000   £55,225
*Indexation Sept 96-June 97         £1,326
  70,000   £55,000   £56,551

*Indexation allowance has been frozen at April 1998, see CG17207.

Capital Gains Computation

Disposal Proceeds of 70,000 non-exempt shares £84,000
Less Cost £55,000
Unindexed Gain £29,000
Less Indexation £1,551
Chargeable gain £27,449

Deferral relief and clawback of deferred gain

Only £60,000 of the expenditure on the shares in September 1996 was used in the claim for deferral relief. Therefore the expenditure on 30,000 shares (£20,000 / £80,000 x 120,000) has not attracted deferral relief.

This disposal is identified on a first in/first out basis, see above, as follows:

10,000 shares acquired March 1996 no deferral
40,000 shares acquired May 1996 no deferral
30,000 shares acquired September 1996 no deferral
45,000 shares acquired September 1996 Deferral

The transaction in September 1996 was an acquisition of relief and non-relief shares on the same day. For the purposes of releasing the deferred gain the disposal is identified first against the shares which did not attract deferral relief.

Shares acquired September 1996 attracting deferral relief 90,000
Number of those shares disposed of June 1997 45,000

Proportion of £60,000 gain brought back into charge:

£60,000 x 45,000 = £30,000

£30,000 of the deferred gain is treated as accruing in June 1997.