HS284 Shares and Capital Gains Tax (2022) (2024)

This helpsheet explains the basic rules which apply in simple cases to the acquisition and disposal of shares by individuals, personal representatives and trustees in the tax year. It helps you work out the capital gain or loss if you’ve disposed of shares in that tax year. If you’re in any doubt about your circ*mstances, ask your tax adviser. HMRC can also help and you can read our Capital Gains Tax Manual, which explains the rules in more detail.

This helpsheet explains:

• why special rules are needed
• how you identify the shares disposed of
• how you work out the gain under the ‘bed and breakfasting’ rule
• how you work out the gain if the shares are held in a Section 104 holding
• the treatment of units in a unit trust

It will help you fill in the Capital Gains Tax summary pages of your tax return. This helpsheet refers to acquisitions and disposals. These are not restricted to purchases and sales although they will be the most common events. An important exception is where share reorganisations such as rights and bonus issues, or an issue of shares on a company takeover, are not treated as acquisitions. See Helpsheet 285 Capital Gains Tax, share reorganisations and company takeovers.

This helpsheet also assumes that the capital gain or loss will be calculated using the actual costs of acquisition and the actual disposal proceeds. The section ‘Transferring assets between connected people’ on page CGN 2 of the Capital Gains Tax summary notes explains the circ*mstances in which you must substitute market value for actual cost or disposal proceeds.

Helpsheet 287 Employee share and security schemes and Capital Gains Tax explains more about shares which you acquire in connection with your employment or by exercising an employee share option.

Helpsheet 295 Relief for gifts and similar transactions explains more about the capital gains treatment of gifts, including gifts to charity. Helpsheet 342 Charitable giving tells you about the Income Tax relief available for gifts of certain shares, securities and other investments to charity.

The general rules described in this helpsheet may not apply to any shares which you acquired under the Enterprise Investment Scheme (EIS), or to shares in a Venture Capital Trust (VCT). For general information on EIS and VCT shares see Helpsheet 297 Capital Gains Tax and Enterprise Investment Scheme and Helpsheet 298 Venture capital trusts and Capital Gains Tax.

Ask us or your tax adviser if you need detailed information on the rules for EIS or VCT shares.

These general rules do not apply to shares issued on the exercise of an option under the Enterprise Management Initiative on or after 6 April 2012, the rules applying to those shares are explained in Helpsheet 275 Entrepreneurs’ Relief.

Why are special rules needed

Shares of the same class in the same company are identical. Suppose you have a holding of 12,000 Wilson and Strickland plc 25 pence ordinary shares acquired at different times for different prices. You then sell 2,000 shares. To calculate the gain you need to know how much cost can be attributed to the shares you’ve sold. The capital gains rules for shares allow you to do this.

From 6 April 2008 all shares of the same class, in the same company, are together called a ‘Section 104 holding’. You add together the costs of the shares in this holding: each share in the holding is treated as if acquired at the same average cost.

There are a couple of circ*mstances in which shares will not be regarded as becoming part of the holding. Mainly shares affected by the ‘bed and breakfasting’ and ‘same day’ rules.

How to identify the shares disposed of

When you dispose of shares you cannot work out your capital gain or loss until you have matched the shares disposed of with shares you acquired. You’re treated as disposing of shares in the following order:

If these rules fail to exhaust the shares disposed of, the remaining shares are matched with later acquisitions, taking the earliest one first.

How you work out the gain under the ‘bed and breakfasting’ rule

If a disposal of shares is identified with shares acquired within the following 30 days, the gain or loss on disposal is the difference between the net disposal proceeds and the acquisition cost.

This ‘bed and breakfasting’ rule does not apply if the person who made the disposal was not resident in the UK for tax purposes at the time of the acquisition.

The Section 104 holding consists of a single pool of expenditure usually representing the actual cost of shares.

The exception to using the actual cost is if you held some of the shares on 31 March 1982. In that case you will need to use the market value of the shares on that day. If the shares were quoted on a recognised Stock Exchange on 31 March 1982 you can find the value from authoritative published sources such as the Interactive Data Capital Tax Service. If not, then you or your professional adviser will have to provide a valuation.

We will want to check that valuation. Many quoted companies have undergone share reorganisations since 1982 and you will probably need to refer to Helpsheet 285 Capital Gains Tax, share reorganisations and company takeovers.

The pool of allowable cost is adjusted each time an ‘operative event’ occurs. An operative event is anything which reduces or increases the value of the pool of cost. Purchases and sales of shares are the most common examples of operative events.

The basic steps for working out a gain (or loss) on a disposal of shares in a Section 104 holding are as follows.

If all the shares in the holding are disposed of, the allowable expenditure is all of the pool of cost. If only some of the shares are disposed of, the allowable expenditure is a fraction of the pool of actual cost. The fraction is ‘Number of shares sold’ divided by ‘Total number of shares in the holding’.

The remaining cost in the holding, to be identified against future disposals, is reduced accordingly. See Example 3.

Units in a unit trust

Units in a trust are treated as if they are shares in an ordinary company. The basic rules described in this helpsheet apply equally to such units (and also to shares in an investment trust or an open-ended investment company). But there are some extra points to note.

Accumulation units

If you hold accumulation units you will not receive distributions of income from the trust. Instead, the income is retained and reinvested automatically for you (a ‘notional distribution’). You do not receive any new units, but the value of your existing units is increased. If you receive notional distributions which are subject to Income Tax, you’re allowed the amount of these distributions as additional expenditure on your accumulation units.

Umbrella schemes

A unit trust may take the form of an ‘umbrella scheme’ authorised by the Financial Services Authority. These schemes have separate sub-funds which are treated as separate authorised unit trusts for Capital Gains Tax (CGT) purposes. A switch from units in one sub-fund to units in another will normally be a disposal of the old units, on which capital gain or loss will arise. But if the switch occurs as part of a merger of sub-funds, the rules described in Helpsheet 285 Capital Gains Tax, share reorganisations and company takeovers may apply. If so, you are not treated as disposing of your old units at the time of the merger.

Monthly saving schemes

Many authorised unit trusts, and also authorised investment trusts and open-ended investment companies, offer investors monthly saving schemes. Statement of Practice, SP2/99 explains the CGT treatment of units and shares in monthly schemes.

Investors’ Relief

See HS308 Investors’ Relief and the Investors’ Relief guidance in the Capital Gains Tax Manual for further information.

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