CG50579 - Share identification rules: CGT treatment of shares from 6.4.98: examples
The following examples illustrate how acquisitions and
disposals of shares are treated for Capital Gains Tax purposes in
1998-99 and later years.
In each example it should be assumed that all acquisitions
and disposals are arm's length transactions in shares listed on the
stock exchange. The shares are all of the same class in the same
company and held by a UK taxpayer in the same capacity. Figures for
disposal proceeds are net of incidental costs of disposal.
EXAMPLE 1
Ms Faraday makes the following acquisitions and disposals
- on 15 April 1998 she buys 1,000 shares for £1,300
- on 4 August 1998 she buys another 1,000 shares for £1,450
- on 19 January 1999 she buys a further 500 shares for £950
- on 16 March 2002 she sells 2,000 shares for £6,850
- on 7 April 2002 she buys another 2,000 shares for £6,790
- on 10 December 2002 she sells 2,200 shares for £7,700.
Ms Faraday's purchases are all made after 5 April 1998, so they are not pooled, but treated as separate acquisitions, see CG50572. Under TCGA92/S106A, see CG50464, her disposals must be identified with acquisitions in the following order
- disposal on 16 March 2002 - this is matched with the 2,000 shares acquired on 7 April 2002. A gain £60 (£6,850 - £6,790) arises
- disposal on 10 December 2002 - this is matched, on a LIFO basis, firstly with the 500 shares acquired on 19 January 1999, then the 1,000 shares acquired on 4 August 1998, and finally with 700 of the 1,000 shares acquired on 15 April 1998.
The gains arising (before any taper relief, see CG17895+) are therefore as follows.
|
£ |
|||||
| Disposal proceeds |
£7,700 |
x |
500 |
= |
1,750 |
|
2,200 | |||||
| Cost of 500 shares |
950 |
||||
| GAIN |
800 |
||||
| Disposal proceeds |
£7,700 |
x |
1,000 |
= |
3,500 |
|
2,200 | |||||
| Cost of 1,000 shares |
1,450 |
||||
| GAIN |
2,050 |
||||
| Disposal proceeds |
£7,700 |
x |
700 |
= |
2,450 |
|
2,200 | |||||
| Cost of 700 shares |
£1,300 |
x |
700 |
= |
910 |
|
1,000 | |||||
| GAIN |
1,540 |
After the disposal on 10 December 2002 Ms Faraday's shares comprise the 300 shares remaining from the acquisition on 15 April 1998, which have an acquisition cost of £390 (£1,300 £910).
EXAMPLE 2
Mr Greene makes the following acquisitions and disposals
- on 17 August 1998 he buys 10,000 shares for £2,500
- on 1 April 1999 he buys 10,000 shares for £2,600
- on 8 October 1999 he takes up a 1 for 5 rights issue at a cost of £960, and receives a further 4,000 shares
- on 10 December 2002 he sells 7,500 shares for £3,000.
The 1 for 5 rights issue is a reorganisation of the company's share capital to which TCGA92/S127, see CG51700+, applies. The rights issue shares are treated as having been acquired when the original shares were acquired. So following the reorganisation Mr Greene is treated as having acquired
- 12,000 shares on 17 August 1998 for a total cost of £2,980
- 12,000 shares on 1 April 1999 for a total cost of £3,080.
The disposal on 10 December 2002 is identified, on a LIFO basis, with 7,500 of the 12,000 shares treated as acquired on 1 April 1999. The gain (before any taper relief, see CG17895+) is as follows.
|
£ |
|||||
| Disposal proceeds |
3,000 |
||||
| Cost | £3,080 | x |
7,500 | = |
1,925 |
|
12,000 | |||||
| GAIN |
1,075 |
EXAMPLE 3
Mrs Hill makes the following acquisitions and disposals
- on 27 May 1979 she buys 7,500 shares for £18,750
- on 6 February 1988 she buys another 4,000 shares for £16,500
- on 28 July 1993 she buys another 4,000 shares for £17,000
- on 31 March 1999 she buys another 6,000 shares for £29,000
- on 13 June 2003 she sells 16,500 shares for £114,675.
Mrs Hill's 1979 purchase forms a 1982 holding, see CG50871. The
1988 and 1993 purchases form a Section 104 holding, see CG50590.
The 1999 purchase is a free-standing acquisition, see CG50572.
Under TCGA92/S106A, see CG50564, her disposal in 2003 is
matched with acquisitions, on a LIFO basis
- first with the 6,000 shares acquired in 1999
- next with the 8,000 shares in the Section 104 holding
- next with 2,500 of the 7,500 shares in the 1982 holding.
The gains (before any taper relief, see CG17895+) are as follows.
|
£ |
||||
| Disposal proceeds |
£114,675 |
x |
6,000 |
41,700 |
|
16,500 | ||||
| Cost |
£29,000 |
|||
| GAIN |
12,700 |
|||
| Disposal proceeds |
£114,675 |
x |
8,000 |
55,600 |
|
16,500 | ||||
| Cost (see below) |
33,500 |
|||
| Unindexed gain |
22,100 |
|||
| Indexation (see below) |
12,018 |
|||
| Indexed gain |
10,082 |
The cost of, and indexation allowance due on, the Section 104 holding is calculated as follows.
|
NUMBER OF SHARES |
POOL OF QUALIFYING EXPENDITURE |
INDEXED POOL OF EXPENDITURE |
|||
| 6 February 1988: creation of Section 104 holding |
4,000 |
£16,500 |
£16,500 |
||
| Indexation to July 1993 | |||||
| £16,500 x |
140.7 - 103.7 |
£5,887 |
|||
|
103.7 | |||||
|
4,000 |
£16,500 |
£22,387 |
|||
| 28 July 1993: operative event - addition to pool |
4,000 |
£17,000 |
£17,000 |
||
|
8,000 |
£33,500 |
£39,387 |
|||
| Indexation to April 1998* | |||||
| 39,387 x |
162.6 - 140.7 |
£6,131 |
|||
|
140.7 | |||||
|
8,000 |
£33,500 |
£45,518 |
|||
| 13 June 2003: operative event - disposal |
(8,000) |
(33,500) |
(45,518) |
||
*NOTE: If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. For indexation allowance see CG17207+ and for taper relief see CG17895+
|
£ |
||||
| Disposal proceeds | £114,675 x |
2,500 |
17,375 |
|
|
16,500 | ||||
| Cost | £18,750 x |
2,500 |
6,250 |
|
|
7,500 | ||||
| Unindexed gain |
11,125 |
|||
| Indexation allowance to April 1998 * Market value of 1982 holding at 31 March 1982 (say) | ||||
|
£20,700 x |
2,500 | x 1.04 |
7,224 |
|
|
7,500 | ||||
| INDEXED GAIN |
3,901 |
|||
* Note: see CG17207 about the freezing of indexation for CGT purposes.
EXAMPLE 4
The trustees of the Island Trust make the following acquisitions and disposals
- on 24 September 1991 they buy 15,000 shares for £6,750
- on 30 January 1995 they take up in full a 3 for 5 rights issue at 40p a share, receiving an extra 9,000 shares for £3,600
- on 14 June 1998 they buy a further 12,000 shares for £13,800
- on 26 November 1999 they take up in full a further 1 for 4 rights issue at 105p per share, receiving another 9,000 shares for £9,450
- on 23 February 2004 they sell 20,000 shares for £39,000.
The shares acquired on 24 September 1991 form a Section 104 holding. The two rights issues are reorganisations of the company's share capital to which TCGA92/S127 applies, see CG51700+. The rights issue shares are treated as having been acquired when the original shares were acquired. So following the first reorganisation the trustees are treated as having acquired 24,000 shares on 24 September 1991. Following the second reorganisation they are treated as having acquired
- 30,000 shares on 24 September 1991 for £16,650
- 15,000 shares on 14 June 1998 for £16,950.
The disposal on 23 February 2004 is identified, on a LIFO basis, firstly with the 15,000 shares treated as acquired in June 1998, and next with 5,000 of the 30,000 shares in the Section 104 holding. The gains (before any taper relief, see CG17895+) are as follows.
|
£ |
||||
| Disposal proceeds |
£39,000 |
x |
15,000 |
29,250 |
|
20,000 | ||||
| Cost |
16,950 |
|||
| GAIN |
12,300 |
|||
| Disposal proceeds |
£39,000 |
x |
5,000 |
9,750 |
|
20,000 | ||||
| Cost (see below) |
2,775 |
|||
| Unindexed gain |
6,975 |
|||
| Indexation (see below) |
302 |
|||
| Indexed gain |
6,673 |
The cost of, and indexation allowance due on, the Section 104 holding is calculated as follows.
|
NUMBER OF SHARES |
POOL OF QUALIFYING EXPENDITURE |
INDEXED POOL OF EXPENDITURE |
||
| 24 SEPTEMBER 1991: creation of Section 104 holding |
15,000 |
£6,750 |
£6,750 |
|
| Indexation to January 1995 | ||||
|
£6,750 x |
146.0 - 134.6 |
£572 |
||
|
134.6 | ||||
|
15,000 |
£6,750 |
£7,322 |
||
| 30 January 1995: operative event - rights issue |
9,000 |
£3,600 |
£3,600 |
|
|
24,000 |
£10,350 |
£10,922 |
||
| Indexation to April 1998 (see note 1) | ||||
|
£10,922 x |
162.6 - 146.0 |
£1,242 |
||
|
146.0 | ||||
|
24,000 |
£10,350 |
£12,164 |
||
| 26 November 1999: operative event - rights issue |
6,000 |
£6,300 |
£6,300 |
|
|
30,000 |
£16,650 |
£18,464 |
||
| 23 February 2004: operative event - disposal (see note 2) |
(5,000) |
(£2,775) |
(£3,077) |
|
|
25,000 |
£13,875 |
£15,387 |
||
NOTE.1: If a taxpayer is within the charge to Capital Gains Tax,
neither indexation allowance nor taper relief apply to disposals of
assets on or after 6 April 2008. Previously indexation allowance
had been frozen at April 1998. For indexation allowance see
CG17207+ and for taper relief see CG17895+.
Note 2: for guidance on how the cost of a Section 104 holding
is apportioned following a share reorganisation, see CG51890+: in
this case the apportionment can be by reference to the number of
shares sold, see CG51893 and CG50728.
