CGT Shares - July 2023

COURSE: ACCA – TAXATION (TX)
Lecture Topic: Capital Gains Tax – Shares & Securities
1. The matching rules for individuals
o Shares and securities in a particular company of the same class are not distinguishable from one another. Each
time shares are bought the price paid may be different.
Therefore, there needs to be some method to enable us to decide which shares have been sold and so work out
what the allowable cost on disposal should be.
o The following matching / identification rules were designed for this purpose.
For individuals, share disposals are matched with acquisitions in the following order:
(a) Shares acquired on the same day as the disposal

(b) Shares acquired within the following 30 days after the disposal
(c) Shares in the share pool.
The cost of the shares identified using the above matching rules will then be used as the allowable cost in
calculating the gain or loss on disposal.
o Note: At any one time, we will only deal with shares of the same class in the same company. Separate calculations
are needed for disposals of different classes of shares or shares in different companies
1.1 The share pool
o All shares acquired (except same day and following 30 day acquisitions) are put into a ‘share pool’. The pool
keeps track of:
(a) The number of shares

(b) The cost of the shares
o When pool shares are acquired, the number of shares and the cost of the shares are added to the pool.
o When disposing of shares from the pool, the cost attributable to the shares disposed of is deducted from the pool.
The apportionment is usually done using the number of shares.
2. Bonus issues
o A bonus issue occurs when additional shares are issued to shareholders in proportion to their existing
shareholding, but at no cost to the shareholder.
o When an individual receives shares via a bonus issue, the only thing that changes is the number of shares held.
3. Rights issues
o Like a bonus issue, a rights issue is where new shares are acquired in proportion to an existing shareholding.
o In a rights issue however, money is paid to acquire these shares. Therefore, both the number of shares and the cost
of the shares must be adjusted.
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4. Takeovers
o Where a takeover is a paper for paper transaction, shareholders of the company taken over receive shares in the
acquiring company (the new shares) in exchange for their shares in the company being taken over (the old shares).
This does not constitute a chargeable disposal.
o When the new shares acquired are being disposed of however, this is a chargeable disposal and a gain (or loss)
must be computed.
For this purpose, the new shares are deemed to have been acquired at the same cost as the original shares
(i.e. the new shareholding simply takes the place of the old shareholding).
o When there is a part disposal of the new shares acquired, the allowable cost of the shares disposed of is
computed using the market values of the new shares; therefore:
Allowable Cost = Cost of entire shareholding × Market value of the shares sold
of shares sold Market value of entire shareholding
Note: The market values used in the computation are the market values immediately after the takeover.
o Note: If part of the takeover consideration is cash then a gain must be computed using the normal part disposal
rules.
5. Reorganizations
o A reorganization takes place where new shares or a mixture of new shares and debentures are issued in exchange
for the original shareholdings. The new shares take the place of the old shares.
o If the new shares and securities are quoted, then the cost is apportioned by reference to the market values of the
new types of capital on the first day of quotation after the reorganization.
6. Gilts and qualifying corporate bonds

o Disposals of gilt-edged securities (UK Government securities) and qualifying corporate bonds (QCBs) by
individuals are exempt from CGT.
7. Valuing quoted shares

o When an asset is disposed of by way of a gift, the market value of the asset is used as the disposal consideration
to compute the gain or loss.
The market value for quoted shares and securities is the average of the day’s quoted prices.
Example: Shares in A plc are quoted at 100-110p.
The market value (per share) for CGT purposes = (100 + 110)/ 2
= 105p
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Questions
1.
On 31 January 2018 Simon sold 2,000 shares in Suntech Ltd for £80,000. Simon’s acquisitions of shares in Suntech Ltd.
were as follows:
Number of shares Cost

£
6 April 2006 2,000 10,000
30 April 2010 1,000 8,000
31 January 2018 500 7,000
10 February 2018 200 3,600
Calculate the chargeable gain on this disposal.
2.
Frances sold 11,000 ordinary shares in the Hastings Co plc, a quoted company, on 18 December 2017 for £50,000. Her
entire shareholding (before the disposal) was made up as follows:
Number of shares Cost

£
09 April 2002 8,000 7,450
12 December 2007 4,000 5,500
18 December 2017 2,000 6,000
3.
On 14 May 2017, Ravi sold 10,000 shares for £28,000. Ravi had acquired shares as follows:
Purchased 2,000 shares for £8,180 on 16 May 2007

Received shares via a 1 for 1 bonus issue in December 2008
Purchased 3,000 shares for £9,600 on 14 August 2009
Took up a 1 for 2 rights issue for £2 per share in June 2013
Calculate Ravi’s chargeable gain on this disposal.
4.
On 2nd June 2003 Mr. Malloy purchased 2,000 ordinary shares in Blue Ltd. for £5,000. On 17 July 2010 Blue Ltd was
taken over by Red Ltd., and Mr. Malloy received 2 ordinary shares and 1 preference share in Red Ltd. for each ordinary
share in Blue Ltd.
The market values of the shares in Red Ltd. immediately after the takeover were:
Ordinary shares: £4
Preference shares: £2
In December 2017 Mr. Malloy sold all his ordinary shares in Red Ltd. for £18,000.
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COURSE: ACCA – TAXATION (TX)

Lecture Topic: Capital Gains Tax – Shares & Securities

1. The matching rules for individuals

(a) Shares acquired on the same day as the disposal

1.1 The share pool

(a) The number of shares

6. Gilts and qualifying corporate bonds

7. Valuing quoted shares

Example: Shares in A plc are quoted at 100-110p.

Number of shares Cost

Calculate the chargeable gain on this disposal.

Number of shares Cost

Calculate the chargeable gain on this disposal.

Purchased 2,000 shares for £8,180 on 16 May 2007

Calculate Ravi’s chargeable gain on this disposal.

Calculate the chargeable gain on this disposal.

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