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ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of shares and securities

Ahmed bought 6,000 shares in Delta plc for £15,000. Delta plc later made a 1 for 3 bonus issue, followed by a 1 for 4 rights issue at £4.00 per share, and Ahmed took up all his rights. He then sold 5,000 shares for £40,000, with no other disposals in the year. His taxable income already exceeds the basic rate band, and he has no losses. What is his capital gains tax liability on the sale (shares are not qualifying for any relief)?

The pool becomes 10,000 shares costing £23,000 after the bonus and rights issues. Selling 5,000 uses £11,500 of cost, giving a gain of £28,500. After the £3,000 annual exempt amount, £25,500 is taxed at 24%, so the tax is £6,120.

  1. A£4,590
  2. B£6,840
  3. C£6,630
  4. D£6,120Correct

Explanation

After the bonus issue the pool has 8,000 shares costing £15,000. Rights: 2,000 shares at £4 = £8,000, so the pool is 10,000 shares costing £23,000. Cost of 5,000 sold is £11,500, so the gain is £28,500. Less the £3,000 annual exempt amount gives £25,500, taxed at 24% = £6,120. £4,590 uses 18% and £6,840 ignores the annual exempt amount.

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