VCM47350 - VC loss relief: mixed holdings: previous part disposal: example
ICTA88/S576 (1)
In this example there is a part disposal of shares following an
earlier part disposal, that resulted in a chargeable gain.
FACTS
- In December 1994 a taxpayer subscribes for 5,000 shares in E Ltd at a cost of £5,000 without claiming any EIS relief.
- In August 1995 the taxpayer buys a further 2,500 shares at a cost of £15,000.
- In July 1996 the taxpayer sells 1,000 shares for £10,000.
- In January 2002 the taxpayer sells 3,000 of the shares at arm’s length for £4,000.
- E Ltd is a qualifying trading company.
The shares fall to be dealt with in a TCGA92/S104 holding. The computations are as follows:
| Number of shares held | Actual cost | Indexed cost | |||||||
| December 1994 subscription |
| 5,000 |
|
| £5,000 |
|
| £5,000 |
|
| Indexation December 1994 to August 1995 |
|
|
|
|
|
|
| £135 |
|
|
|
| 5,000 |
|
| £5,000 |
|
| £5,135 |
|
| August 1995 purchase |
| 2,500 |
|
| £15,000 |
|
| £15,000 |
|
|
|
| 7,500 |
|
| £20,000 |
|
| £20,135 |
|
| Indexation August 1995 to July 1996 |
|
|
|
|
|
|
| £360 |
|
|
|
| 7,500 |
|
| £20,000 |
|
| £20,475 |
|
| July 1996 part disposal |
| (1,000) |
|
| (£2,667) |
|
| (£2,730) |
|
|
|
| 6,500 |
|
| £17,333 |
|
| £17,745 |
|
| Indexation July 1996 to April 1998 * |
|
|
|
|
|
|
| £1,189 |
|
| (* indexation to April 1998 only, CG17207) |
| 6,500 |
|
| £17,333 |
|
| £18,934 |
|
| January 2002 part disposal |
| (3,000) |
|
| (£8,000) |
|
| (£8,739) |
|
|
|
| 3,500 |
|
| £9,333 |
|
| £10,195 |
|
To find the VC loss relief potentially due go through the fours
steps described in
VCM47150.
Step 1
Compute the allowable loss on the part disposal in January
2002 in the usual way. The disposal results in an allowable loss,
as follows:
| Disposal proceeds |
|
| £4,000 |
| less Indexed cost | £8,739 |
|
|
| or actual cost | £8,000 | [#] | (£8,000) |
| Allowable loss |
|
| £4,000 |
[#] For disposals on or after 30 November 1993 indexation
allowance cannot create or enhance an allowable loss
Step 2
Identify the qualifying shares included in the disposal. As
there are no relief shares (see
VCM47050) the normal rules of
ICTA88/S576 (1) apply and disposals are identified on a last in
first out basis. Because there was an earlier part disposal you
must first identify the shares included in that part disposal.
The part disposal of 1,000 shares in July 1996 is identified
on the last in first out basis with 1,000 of the non-qualifying
shares purchased in August 1995. The 6,500 shares left in the
Section 104 holding after that disposal comprise:
- the 5,000 qualifying shares acquired in December 1994, and
- 1,500 of the non-qualifying shares acquired in August 1995.
Next identify the 3,000 shares disposed of in January 2002 - on the last in first out basis these comprise:
- the 1,500 non-qualifying shares acquired in August 1995, and
- 1,500 of the qualifying shares acquired in December 1994.
Step 3
Calculate the part of the allowable loss which arises on the
qualifying shares.
| £4,000 x | 1,500 | = £2,000 |
|
| 3,000 |
|
Step 4
Compare the figure in Step 3 of £2,000 with the actual
cost of the qualifying shares, which was £1.00 per share or
£1,500 for the 1,500 qualifying shares sold. VC loss relief
may be claimed on the lower figure of £1,500. The balance of
the loss is £4,000 less £1,500 = £2,500 and is
available as a capital loss.
