ACCA Strategic Professional · Advanced Taxation (UK)

Capital Gains Tax: Gains and Losses on Disposal of Shares and Securities

CGT on shares is the tax on gains when an individual sells or gifts shares. You match each disposal to acquisitions using fixed rules: same day, then the next 30 days, then the Section 104 pool. Compute the gain, apply losses and the annual exempt amount, then tax it at the right rate.

What this chapter covers

This chapter covers how UK capital gains tax applies when an individual disposes of shares and securities. The core skill is the matching rules. You must decide which shares a disposal is matched with before you can compute any gain. Then you deal with the events that change a holding: bonus issues, rights issues, takeovers and reorganisations.

The second half of the chapter is about tax cost and reliefs. You apply the rates and annual exempt amount from the tax tables. You then consider business asset disposal relief, investors' relief, share loss relief against income, gift relief and stamp duty on shares. Each relief has conditions, so you must test the facts in the scenario.

This chapter links to much of the paper. Share disposals appear alongside inheritance tax on gifts, owner-managed business planning, and company share schemes. A Section A case study may ask you to compare selling shares, gifting them, or having a company buy them back. You also need to advise on the best way to extract value, so the numbers here feed your tax planning advice.

Share disposals are a favourite setting for ATX-UK scenarios, because they combine calculation, relief conditions and planning advice in one problem. Technical marks come from correct matching, pooling and relief claims. Professional skills marks are available in both Section A and Section B, and they come from presenting clear advice to a client. Every exam is out of 100 marks and the pass mark is 50%, so a reliable approach to this chapter gives you marks that are easy to protect. The tax tables supply the rates and limits, so your effort goes into method and conditions, not memory.

Capital gains tax: gains and losses on the disposal of shares and securities: topics in the order to study them

1Share Disposals by Individuals: Matching Rules and PoolingEverything else builds on this. You cannot compute a gain until you know which shares were sold.
2Bonus Issues, Rights Issues and Share ReorganisationsThese change the pool and the cost, so they come straight after the basic matching rules.
3Takeovers, Reconstructions and Share-for-Share ExchangesThey extend reorganisation ideas to a deal where shares are swapped, often with cash too.
4CGT Rates, Annual Exempt Amount and Business Asset Disposal ReliefOnce you can find a gain, you learn how it is taxed and how the lower rate for qualifying disposals works.
5Investors' Relief and Share Loss ReliefThese are narrower reliefs. They are easier once you know the main rates and the 14% relief framework.
6Gift Relief, Reliefs on Shares and Stamp Duty on SharesThis is the planning topic. It pulls together gifts, deferral and the stamp duty cost of a transfer.

How to prepare Capital gains tax: gains and losses on the disposal of shares and securities

Treat this as a method chapter. Practise the steps until they are automatic, then add the relief conditions.

Learn the matching order: same day, then the next 30 days (the 'bed and breakfast' rule), then the Section 104 pool. Draw it as a flow chart.
Practise pool workings in a fixed layout with columns for number of shares and cost. Update the pool for each purchase, bonus issue and rights issue.
Work reorganisation and takeover questions. Split consideration into shares and cash, and apportion the cost by market values.
Open the tax tables and learn where each rate and limit sits. Use them in every answer: 18% and 24% rates, the £3,000 annual exempt amount, the £1,000,000 lifetime limits and the 14% rate for the reliefs.
Write down the conditions for each relief as a checklist. Test each condition against the facts in the scenario and say which are met.
Do timed Section A and Section B questions. Finish each with a short recommendation, such as whether a sale, a gift or a claim for relief gives the better result.
Review your answers for layout and clarity. Use headings, show workings, and state assumptions so a marker can follow each step.

Common mistakes in Capital gains tax: gains and losses on the disposal of shares and securities

Using the pool for every disposal without checking same-day and 30-day matches first.
Fix: Always list all purchases and sales by date. Test same-day, then the following 30 days, before you touch the pool.
Getting the pool wrong after a rights issue by leaving out the cash paid.
Fix: Add both the new shares and the money paid to the pool. Only a bonus issue adds shares at nil cost.
Applying the wrong rate to the gain.
Fix: Work out taxable income first and see how much basic rate band remains. Gains that qualify for business asset disposal relief or investors' relief are taxed first at 14% and use up any remaining basic rate band. Only the band left after those gains is available for other gains, which are taxed at 18% within it and at 24% above it.
Claiming a relief without testing its conditions.
Fix: Write out each condition and say whether the facts meet it. Mark it as unknown if the scenario is silent, and state the assumption.
Forgetting the annual exempt amount or using it in the wrong place.
Fix: Set current-year losses against the gains in the most beneficial way, in full. Then deduct the £3,000 annual exempt amount, setting it against the gains taxed at the highest rate first: 24% gains, then 18% gains, then 14% gains for business asset disposal relief or investors' relief.
Giving a calculation with no advice.
Fix: Add a short conclusion that compares options and says what the client should do. This earns professional skills marks.

Last-day revision: Capital gains tax: gains and losses on the disposal of shares and securities

Matching order for individuals: same day, next 30 days, then the Section 104 pool.
The pool holds the number of shares and the total cost. Add purchases, deduct part of the cost on a disposal.
A bonus issue adds shares to the pool at nil cost.
A rights issue adds shares and the cash paid to the pool.
In a share-for-share exchange, the gain is usually rolled into the new shares and the old cost carries over.
Cash received in a takeover can trigger a part-disposal, so check for it.
CGT rates for individuals are 18% and 24%. The annual exempt amount is £3,000. Set it against gains taxed at the highest rate first: 24%, then 18%, then 14%.
Business asset disposal relief and investors' relief both give a 14% rate, each with a £1,000,000 lifetime limit. Qualifying gains are taxed first and use up any remaining basic rate band.
Business asset disposal relief and investors' relief each have their own conditions. Check them in the scenario.
Stamp duty on shares is 0.5% of the consideration and is paid by the purchaser. A gift for no consideration carries no stamp duty. Electronic transfers attract stamp duty reserve tax instead of stamp duty.
Gift relief can defer a gain on a gift of qualifying business assets. Check that the shares qualify.
State your assumptions and give a clear recommendation.

Capital gains tax: gains and losses on the disposal of shares and securities practice questions

Capital gains tax: 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.

Capital gains tax: gains and losses on the disposal of shares and securities: frequently asked questions

What are the share matching rules for individuals in ATX-UK?

Disposals are matched first with shares bought on the same day, then with shares bought in the next 30 days, and finally with the Section 104 pool. Within each step you compute the gain separately. Always list your transactions by date before you start.

Which CGT rates do I use for share gains in the exam?

The tax tables give a lower rate of 18% and a higher rate of 24%. Gains that qualify for business asset disposal relief or investors' relief are taxed at 14%, up to a £1,000,000 lifetime limit for each relief. Take the figures from the tables provided.

Do I need to memorise the tax rates and limits?

No. ACCA provides the tax tables in the exam. You must know where to find each figure and how to apply it. Practise with the tables open so you can find the right rate quickly.

How is stamp duty on shares dealt with in this chapter?

Stamp duty on shares is charged at 0.5% of the consideration, according to the tax tables, and the purchaser pays it. It matters in planning advice when a client buys shares or a company buys back its own, in which case the company is the purchaser. No stamp duty arises on a gift of shares for no consideration. Stamp duty applies to transfers by stock transfer form, while electronic transfers attract stamp duty reserve tax.

How should I answer a long share disposal question?

Start with a clean layout and a dated list of transactions. Show each working, state your assumptions, and test the conditions of any relief. End with a short recommendation, because professional skills marks are available in both Section A and Section B.