VCM47050 - VC loss relief: mixed holdings: part disposal: identification rules

ICTA88/S576 (1), (1A) & (1B)

Shares of the same class in the same company are identical. There are special rules that identify which shares have been disposed of when there is a disposal of only some of the shares held. Shares of the same class in the same company acquired before 6 April 1998 were dealt with in share pools. Shares acquired between 6 April 1982 and 5 April 1998 form a pool called a TCGA92/S104 holding and shares acquired between 7 April 1965 and 5 April 1982 form a pool called a 1982 holding. Shares held on 6 April 1965 when CGT was introduced are dealt with separately. Shares acquired after 5 April 1998 are not pooled but kept as separate acquisitions, but all shares acquired on the same day are treated as a single acquisition. There is detailed guidance on these share identification rules at CG50500 onwards.

The general CGT rules for share disposals on or after 6 April 1998 are explained at CG50564. Broadly speaking, a last in first out system applies for individuals and other persons within the charge to CGT, but not for companies within the charge to CT. But these rules may be modified if any of the shares held are relief shares, which are:

• shares issued before 1 January 1994 for which Business Expansion Scheme (BES) relief has been given and not withdrawn (see CG56900), or
• shares issued on or after 1 January 1994 to which EIS income tax relief is attributable (see VCM25000 onwards), or
• shares to which EIS deferral relief is attributable (see VCM35000 onwards).

If relief shares are held TCGA92/S150 (5) and TCGA92/S150A (5) provide that the normal CGT last in first out rule does not apply. Instead:

• for BES shares you follow the identification rules in ICTA88/S299 (3) - (4C) (see CG56925 onwards), and
• for EIS shares you follow the identification rules in ICTA88/S299 (6) - (6D) (see VCM32000 onwards).

Broadly, where relief shares of the same class, in either a BES or EIS company as the case may be, have been issued at different times to an individual any disposal is treated on a first in first out basis.

ICTA88/S576 (1) - (1C) provide that in determining which shares have been sold for the purposes of VC loss relief the identification rules are the same as the CGT identification rules.

Slightly different rules applied for identifying which shares had been disposed of when the disposal was made before 6 April 1998. These are explained at CG50563.

When you have identified which shares have been disposed of you compute the allowable loss in the normal way. If all the shares disposed of are eligible for relief under ICTA88/S574 the full amount of any loss qualifies for relief. However, if the disposal is of shares only some of which potentially qualify for VC loss relief, only part of the loss qualifies for relief. This will most commonly arise when the disposal is of shares in a Section 104 holding or a 1982 holding, as such holdings may well contain both qualifying and non-qualifying shares. But it may also be necessary for shares acquired after 5 April 1998. For instance, a taxpayer may both purchase and subscribe for shares in a company on the same day so that he is treated as making a single acquisition.