VCM68320 - VCT: deferral relief: share identification rules
TCGA92/SCH5C/PARA4 (2) & (3)
Disposals are identified:
- on a first in/first out basis,
- if relief and non-relief shares are acquired on the same day the non-relief shares are treated as disposed of first.
For the purposes of making this identification the share pooling
rules which apply to TCGA92/S104 holdings of shares are ignored.
You will have to identify as a question of fact when the shares in
the Section 104 holding were acquired.
Example
An investor has the following transactions in the shares of A
plc, an approved VCT:
- March 1996 buys 10,000 shares cost £15,000. These shares do not qualify for disposal relief because the permitted maximum for the year 1995-96 has already been exceeded.
- May 1996 buys 40,000 shares for £60,000.
- September 1996 subscribes £80,000 for 120,000 shares.
- June 1997 sells 125,000 shares for £150,000.
The investor received ‘front-end' Income Tax relief on the
subscription of £80,000 made in September 1996. £60,000
CGT deferral relief on the disposal of a piece of land in December
1996 is claimed.
You have to consider two separate computations for CGT
purposes:
- Disposal relief and the capital gain on the disposal of the VCT shares.
- Deferral relief and the claw back of the deferred gain on the land.
Disposal relief
The 40,000 shares purchased in May 1996 and £40,000
worth of the shares subscribed for in September 1996 qualify for
disposal relief. These shares are not pooled,
VCM66600.
The investor also has a Section 104 holding of 70,000
non-exempt shares, 10,000 purchased in March 1996 and 60,000
subscribed for in September 1996.
The disposal is identified on a first in/first out basis,
VCM66700, as follows:
| 10,000 shares acquired March 1996 | not exempt |
| 40,000 shares acquired May 1996 | Exempt |
| 60,000 shares acquired September 1996 | not exempt |
| 15,000 shares acquired September 1996 | Exempt |
Section 104 holding
|
| Number of Shares |
| Pool of Qualifying Expenditure |
| Pool of Indexed Expenditure |
| March 1996 | 10,000 |
| £15,000 |
| £15,000 |
| *Indexation March 96-Sept 96 |
|
|
|
| £225 |
| September 1996 | 60,000 |
| £40,000 |
| £40,000 |
|
| 70,000 |
| £55,000 |
| £55,225 |
| *Indexation Sept 96-June 97 |
|
|
|
| £1,326 |
|
| 70,000 |
| £55,000 |
| £56,551 |
*Indexation allowance has been frozen at April 1998, see
CG17207.
Capital Gains Computation
| Disposal Proceeds of 70,000 non-exempt shares | £84,000 |
| Less Cost | £55,000 |
| Unindexed Gain | £29,000 |
| Less Indexation | £1,551 |
| Chargeable gain | £27,449 |
Deferral relief and clawback of deferred gain
Only £60,000 of the expenditure on the shares in
September 1996 was used in the claim for deferral relief. Therefore
the expenditure on 30,000 shares (£20,000 / £80,000 x
120,000) has not attracted deferral relief.
This disposal is identified on a first in/first out basis,
see above, as follows:
| 10,000 shares acquired March 1996 | no deferral |
| 40,000 shares acquired May 1996 | no deferral |
| 30,000 shares acquired September 1996 | no deferral |
| 45,000 shares acquired September 1996 | Deferral |
The transaction in September 1996 was an acquisition of relief and non-relief shares on the same day. For the purposes of releasing the deferred gain the disposal is identified first against the shares which did not attract deferral relief.
| Shares acquired September 1996 attracting deferral relief | 90,000 |
| Number of those shares disposed of June 1997 | 45,000 |
Proportion of £60,000 gain brought back into charge:
| £60,000 | x | 45,000 |
= | £30,000 |
|
|
| 90,000 |
|
|
£30,000 of the deferred gain is treated as accruing in June 1997.
