ACCA Applied Skills · Taxation (UK)

Gains and Losses on the Disposal of Shares and Securities

For an individual, you match each share sale against acquisitions in a fixed order: same day, the next 30 days, then the Section 104 pool. You deduct matched cost from proceeds to get the gain, then apply reliefs, losses, the annual exempt amount and the 18% or 24% rates.

What this chapter covers

This chapter covers how an individual calculates the chargeable gain or allowable loss when selling shares and securities. The core skill is matching. You must decide which shares were sold, and so what cost is deducted. Then you handle the pool, bonus and rights issues, takeovers and reorganisations.

It also covers which assets fall outside the charge. Gilt-edged securities and qualifying corporate bonds are exempt, so gains are not taxable and losses are not allowable. You then look at reliefs: business asset disposal relief and investors' relief, which both use a lifetime limit of £1,000,000 and a 14% rate. Finally you look at losses on shares, including negligible value claims.

This chapter builds on the general chargeable gains rules and feeds the full capital gains tax computation: the annual exempt amount of £3,000, the 18% and 24% rates, and the payment of tax. It links to income tax, because the rate depends on your taxable income. It also links to inheritance tax where shares are gifted. Companies use different rules, so keep the individual rules separate in your mind.

Shares appear often in capital gains tax questions. They suit objective test questions, where one matching or pool error costs the whole two marks, and they suit the constructed response questions, where a pool working earns method marks even if one figure is wrong. The calculations are mechanical, so a well-prepared student can score almost full marks. Reliefs add extra marks for knowing the conditions and the 14% rate.

Gains and losses on the disposal of shares and securities: topics in the order to study them

1Share Matching Rules for IndividualsEverything else depends on knowing which shares are treated as sold, so start here.
2Section 104 Share Pool CalculationsThe pool is the third matching rule and the most common calculation, so master it once you know the order.
3Bonus Issues and Rights IssuesThese change the number of shares and the pool cost, so they build directly on the pool working.
4Gilt-Edged Securities and Qualifying Corporate BondsA short topic on exempt assets that you need before you decide whether a disposal is chargeable at all.
5Takeovers and Reorganisations of Share CapitalThese need the pool and the rights issue method, and add the rule for share and cash exchanges.
6Business Asset Disposal Relief and Investors' Relief on SharesLearn the reliefs after you can calculate a gain, because they reduce the rate applied to it.
7Losses on Shares and Negligible Value ClaimsFinish with losses, which pull together gains, the annual exempt amount and relief for unused losses.

How to prepare Gains and losses on the disposal of shares and securities

Work through the chapter in stages, practising numbers early because the marks come from accurate calculations.

Learn the three matching rules for individuals in order and draw the timeline for each question before you calculate anything.
Practise the Section 104 pool layout: number of shares, cost and running balance, with additions and disposals in date order.
Do bonus and rights issue questions by adjusting the pool, treating a rights issue as a purchase at the issue price.
Write a short list of exempt assets and the reasons, then test whether you spot them in scenario questions.
Learn the conditions for business asset disposal relief and investors' relief, and practise applying the 14% rate within the £1,000,000 limit.
Do mixed questions that run from matching through to the tax payable, using the £3,000 annual exempt amount and the 18% and 24% rates.
Time yourself on objective test questions first, then on a full constructed response question with clear workings.

Common mistakes in Gains and losses on the disposal of shares and securities

Putting every disposal straight into the Section 104 pool.
Fix: Always list purchases and sales by date first, and match same-day and 30-day acquisitions before using the pool.
Using the wrong cost for a part-sale from the pool.
Fix: Take the proportion of shares sold to shares held and apply it to the whole pool cost.
Adding the value of a bonus issue to the pool cost.
Fix: For a bonus issue, increase only the number of shares. For a rights issue, add the cash paid to cost.
Calculating gains or losses on gilts and qualifying corporate bonds.
Fix: Check the type of security first. If exempt, state that no gain arises and no loss is allowable.
Applying the 14% rate without checking the conditions or limit.
Fix: Check the conditions for the relief, then apply 14% only up to the remaining limit and the normal rates beyond it.
Deducting the annual exempt amount before current-year losses.
Fix: Net current-year losses against gains first, then use the £3,000 annual exempt amount, then any brought-forward losses only as needed.

Last-day revision: Gains and losses on the disposal of shares and securities

Individuals match a sale in this order: same day, then the next 30 days, then the Section 104 pool.
The pool holds the number of shares and their total cost, updated for each purchase and sale.
On a part-sale from the pool, cost is the pool cost multiplied by shares sold, divided by shares held.
A bonus issue adds shares at no cost, so the total pool cost stays the same.
A rights issue is treated as a purchase at the amount paid, and is added to the pool.
Gilt-edged securities and qualifying corporate bonds are exempt: no gain is taxable and no loss is allowable.
Business asset disposal relief and investors' relief both have a £1,000,000 lifetime limit and a 14% rate.
The annual exempt amount is £3,000, and the main rates are 18% and 24%.
Set current-year losses against current-year gains before the annual exempt amount.
A negligible value claim lets you treat the shares as sold and reacquired at their low value, creating a loss.
Show every working in Section C, because method marks are available.

Gains and losses on the disposal of shares and securities practice questions

Gains and losses on the disposal of shares and securities in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Gains and losses on the disposal of shares and securities: frequently asked questions

What are the share matching rules for individuals?

You match a disposal first with shares acquired on the same day, then with shares acquired in the following 30 days, and then with the Section 104 pool. This fixed order decides which cost you deduct from the proceeds.

Are gains on gilts and qualifying corporate bonds taxable?

No. Gilt-edged securities and qualifying corporate bonds are exempt assets. A gain is not chargeable and a loss is not allowable, so you do not include them in the computation.

What rate applies under business asset disposal relief and investors' relief?

Both reliefs tax qualifying gains at 14%, up to a lifetime limit of £1,000,000 for each relief. You must meet the qualifying conditions, which you need to learn for the exam.

How do I treat a bonus issue and a rights issue in the pool?

A bonus issue adds shares to the pool without adding cost. A rights issue is treated as a purchase, so you add both the new shares and the amount paid to the pool.

What is a negligible value claim?

It lets you treat shares that have become of negligible value as sold and immediately reacquired at their current value. This creates an allowable loss you can use against gains.