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The cost of shares can be difficult to identify when you sell or dispose of some - but not all - of your shares. You might buy the same type of shares, in the same company, at different times. This guide explains how to work out the cost for sales or disposals in 2012-13.
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In some cases you might buy shares of the same class, in the same company, but at different times and prices. When you sell or dispose of some of these shares, share identification rules match the shares you sold with the ones you bought. The rules you must apply are set out below.
First match the shares sold or disposed of with shares you bought on that same day. This is the 'same day' rule. If you haven't bought and sold shares on the same day, you move on to the next step.
Next match the shares sold with shares acquired in the 30 days after the sale or disposal. This is the ‘bed and breakfasting' rule. If you haven't bought any shares within 30 days of the sale, you then look at shares bought at any other time.
If the shares were acquired on any other date a different rule applies. All shares acquired before the day the shares were sold, of the same type in the same company, are pooled to create a single asset. This is called a 'Section 104 Holding'.
If you held shares on 31 March 1982, these are included in the Section 104 Holding at their value on that day, not at their original cost.
Example - a Section 104 holding
You buy 4,000 shares in March 2007 for £5,000.
In September 2008 you buy another 6,000 shares of the same class in the same company for £26,000.
This would give you a Section 104 Holding of 10,000 shares with a cost of £31,000.
Once you've identified the shares you're selling or disposing of you can go on to work out their cost.
If you've matched shares with shares bought on the same day, you use the cost of those shares.
If you've matched shares with those bought in the 30 days after the sale, you use the cost of those shares.
The following rules apply if you've matched shares with those bought at any other time (the section 104 holding). How you work out your cost depends on whether you have sold all or part of your holding.
If you sell or dispose of the entire holding, then the cost is the total cost of the holding.
If you only sell or dispose of part of the holding, you use a proportion of the total cost of the holding.
You first work out the proportion of the holding being sold. You then multiply this proportion by the total cost of the holding. This gives you the cost of the shares in the Section 104 holding being sold.
You have a Section 104 holding of 10,000 shares with a cost of £31,000.
You sell 4,000 of the shares in June 2012.
You bought no further shares so all of the shares sold are matched with the Section 104 holding.
As the Section 104 holding is considered a single asset, you're treated as if you are selling part of the Section 104 holding.
You work out the proportion of the holding being sold (4,000/10,000 = 40%).
You multiply this by the total cost of the holding (£31,000 x 40% = £12,400).
The cost of the shares sold is £12,400.
Companies sometimes reorganise their shares - for example as a result of mergers and take-overs. The cost of the resulting shares is subject to special rules. Applying these rules only becomes relevant when the shares are sold or disposed of. The rules apply when a company has done one of the following:
Such a take-over may involve any of the following: