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:
- Disposal relief and the capital gain on the disposal of the VCT shares.
- Deferral relief and the claw back of the deferred gain on the land.
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|
|*Indexation March 96-Sept 96||£225|
|*Indexation Sept 96-June 97||£1,326|
*Indexation allowance has been frozen at April 1998, see CG17207.
Capital Gains Computation
|Disposal Proceeds of 70,000 non-exempt shares||£84,000|
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:
£30,000 of the deferred gain is treated as accruing in June 1997.