CG50566 - Share identification rules: share disposals: bed and breakfasting identification rule

FA98/S124 and TCGA92/S106A(5) and (5A)

FA98/S124 introduced a new rule to counter `bed and breakfasting' of shares. For a general discussion on `bed and breakfasting' see CG13350+.

The rule applies only for Capital Gains Tax purposes and does not affect companies within the charge to Corporation Tax. It applies to disposals of shares on or after 17 March 1998. These disposals must be identified with acquisitions of shares

• of the same class, see CG50205-50206
• acquired by the same person in the same capacity, and
• acquired within the 30 days after the disposal.

This rule has priority over all other identification rules except the `same day' rule in TCGA92/S105(1), see CG50822.

This ‘bed and breakfasting’ rule does not apply if the person who makes the disposal was not resident in the United Kingdom for tax purposes at the time of the relevant acquisition if that acquisition was on or after 22 March 2006, irrespective of the time of the disposal. Where this is the case, the usual share identification rules apply, see CG50564. Where the 30 day identification rule applies it will normally have the effect of reducing or eliminating the gain or loss which would have arisen if the disposal had been identified with shares already held.

The three requirements above (same class, same capacity, later acquisition within 30 days) must be met for the rule to operate. For example, a disposal by an individual in a personal capacity followed by an acquisition as trustee of a trust would not be subject to the rule. Other transactions which do not come within the scope of the rule are

• a disposal of shares followed by a company reorganisation (such as a rights issue or bonus issue) to which TCGA92/S127 applies, see CG51700+, with the result that the additional shares are not treated as acquired within the 30 days following the disposal
• a disposal of rights which is treated as a part disposal of an interest in shares under TCGA92/S122 and S123, see CG57835+, followed by an acquisition of shares (with no rights attached).

The following examples illustrate how the 30 day identification rule works.

EXAMPLE 1

Miss A has a Section 104 holding of 1,000 ordinary £1 shares in X plc. On 1 July 1998 she sells the whole 1,000 shares. She buys the same number of ordinary £1 shares in X plc on 31 July 1998.

The acquisition is within the 30 day period after the disposal, so the disposal and later acquisition are matched in priority to identifying the disposal with the shares in the Section 104 holding.

EXAMPLE 2

Mr B has a holding of 2,500 ordinary 10p shares in Y plc. On 27 March 1998 he sells 1,700 shares. On 30 March 1998 he buys another 500 10p shares in Y plc.

The later acquisition of 500 shares does not become part of the Section 104 holding. They are identified with 500 of the shares disposed of on 27 March. The remaining 1,200 shares sold are identified with part of the Section 104 holding.

EXAMPLE 3

Mrs C has a Section 104 holding of 10,000 ordinary 25p shares in Z plc. On 28 February 1999 she sells 2,000 shares. On 31 March 1999 she buys another 3,000 of the same shares.

Mrs C's acquisition is not within the 30 days after the disposal. So her disposal cannot be identified under the 30 day rule with 2,000 of the 3,000 shares bought on 31 March. The shares disposed of are therefore identified with part of the Section 104 holding.

EXAMPLE 4

Ms D acquired 100 ordinary £1 shares in W Ltd on 20 February 2000. On 30 March 2006 Ms D sells 50 of these shares. She moved to Australia on 10 April 2006 and became not resident in the United Kingdom for tax purposes.

On 15 April 2006 Ms D buys 25 ordinary £1 shares in W Ltd. This acquisition is within the 30 day period but it is not matched with the disposal on 30 March as Ms D was not resident in the United Kingdom for tax purposes at the time of the relevant acquisition.