VCM47400 - VC loss relief: mixed holdings: same day transaction: example
ICTA88/S576 (1)
The taxpayer may acquire qualifying shares and non-qualifying
shares on the same day. This is treated as a single acquisition.
You identify the shares included in this single acquisition on a
pro rata basis rather than identifying the shares sold first
against one category or the other. You also use this method of
identification when dealing with a rights issue as the share
reorganisation rules treat the new shares and the old shares as
acquired at the same time. For further details see
VCM48350.
FACTS
- In December 1996 a taxpayer subscribes for 5,000 shares in F Ltd at a cost of £5,000 without claiming any EIS relief.
- In August 1997 the taxpayer receives a gift of 1,000 shares in F Ltd - the market value of those shares is £6,000. On the same day he subscribes for 1,500 shares in F Ltd paying £9,000 for them. Again, no EIS relief is claimed.
- In January 2002 the taxpayer sells 2,000 of the shares at arm’s length for £3,000.
- F 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 1996 subscription |
| 5,000 |
|
| £5,000 |
|
| £5,000 |
|
| Indexation December 1996 to August 1997 |
|
|
|
|
|
|
| £135 |
|
|
|
| 5,000 |
|
| £5,000 |
|
| £5,135 |
|
| August 1997 gift/subscription |
| 2,500 |
|
| £15,000 |
|
| £15,000 |
|
|
|
| 7,500 |
|
| £20,000 |
|
| £20,135 |
|
| Indexation August 97 to April 1998 * |
|
|
|
|
|
|
| £524 |
|
| (* indexation to April 1998 only, CG17207) |
| 7,500 |
|
| £20,000 |
|
| £20,659 |
|
| January 2002 part disposal |
| (2,000) |
|
| (£5,333) |
|
| (£5,509) |
|
|
|
| 5,500 |
|
| £14,667 |
|
| £15,150 |
|
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 |
|
| £3,000 |
| less Indexed cost | £5,509 |
|
|
| or actual cost | £5,333 | [#] | (£5,333) |
| Allowable loss |
|
| £2,333 |
[#] 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. The part disposal of 2,000 shares in January 2002
is identified on the last in first out basis with 2,000 of the
2,500 shares acquired on the same day in August 1997. Those 2,500
shares include 1,500 that qualify and 1,000 that do not qualify.
The disposal of 2,000 shares is identified on a pro rata basis as
follows:
| 2,000 x | 1,500 | = 1,200 qualifying shares |
|
| 2,500 |
|
| 2,000 x | 1,000 | = 800 non-qualifying shares |
|
| 2,500 |
|
Step 3
Calculate the part of the allowable loss which arises on the
qualifying shares.
| £2,333 x | 1,200 | = £1,400 |
|
| 2,000 |
|
Step 4
Compare the figure in Step 3 of £1,400 with the actual
cost of the qualifying shares, which was £6.00 per share or
£7,200 for the 1,200 qualifying shares sold. VC loss relief
may be claimed on the lower figure of £1,400. The balance of
the loss is £2,333 less £1,400 = £933 and is
available as a capital loss.
