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

Lena holds a Section 104 pool of 4,000 shares in Tarn plc costing £10,000. Tarn plc makes a 1 for 4 bonus issue and then a 1 for 5 rights issue, at which Lena takes up her full entitlement at £3 per share. She then sells 3,000 shares for £12,000, with no other acquisitions or disposals. What is her chargeable gain on the sale?

The gain is £5,500. The bonus issue adds 1,000 shares at no cost, and the rights issue adds 1,000 shares costing £3,000, giving 6,000 shares costing £13,000. Half the pool is sold at a cost of £6,500, which deducted from £12,000 leaves £5,500.

  1. A£5,500Correct
  2. B£4,200
  3. C£6,000
  4. D£7,000

Explanation

The bonus issue adds 1,000 shares at no cost, giving 5,000 shares costing £10,000. The rights issue of 1 for 5 gives 1,000 shares costing £3,000, so the pool is 6,000 shares costing £13,000. The cost of 3,000 shares is £6,500, so the gain is £12,000 − £6,500 = £5,500. Ignoring the bonus issue gives £4,200, and ignoring the rights cost gives £6,000.

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