GIM5220 - Taxation of the investment return: investment gains: periods of account beginning on or after 1 January 2002: transition from realisations basis: identification of part realisations

Most of the assets to which the change of basis applies will be shares, so that it would be impracticable to require companies to track which holdings of a particular share were acquired after 1 January 2002 and which on or before that date.

Accordingly, FA02/S65 (3) provides that where

• a company realises assets in an accounting period beginning on or after 1 January 2002 of a type, such as shares, where the particular assets are not readily identifiable,
• the realisation does not exhaust its holding of that asset,
• some but not all the holding was acquire after 1 January 2002,

the assets realised are identified with assets held on the same basis as is used in the accounts, so long as that basis is not last-in, first-out (“LIFO”).

It is understood that most companies use an average cost basis to compute profits on part realisations.

If LIFO is used in the accounts, then for tax purposes realisations are identified first with acquisitions on or before 1 January 2002 in priority to ones after.