In this tutorial we will look at the current rules for calculating Capital Gains Tax.
ShareScope calculates CGT in accordance with current legislature. This document focuses on CGT calculations made on holdings that were disposed of after February 2008.
Should you be interested in more detail in Capital Gains Tax, we would recommend either of the CGT guides by Tolley Publishing Company Ltd or Tottel Publishing Ltd.
HMRC also has a series of guides on their website which can be accessed here:
https://www.gov.uk/capital-gains-tax/overview
https://www.gov.uk/tax-sell-shares/what-you-pay-it-on
Capital Gains Tax was introduced in 1965. It is charged on gains made on capital assets when you sell or dispose of them. If when you sell or give away an asset it has increased in value, you may have to pay tax on the 'gain' (profit).
You don't have to pay CGT on:
These are some points to bear in mind:
CGT is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account:
How much CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of that total. The gains are then charged to CGT at the following rates (2014 - 2015 tax year):
18 % where your gain and taxable income is less than the Basic Income Tax Band
(£32,010 for the 2013 to 2014 tax year)
28 % your gain and taxable income exceeds the Basic Income Tax Band
When shares are sold the gain is calculated from the cost of purchasing the shares. Where there is more than one purchase calculations can be more complex.
Since 6 April 2008 all shares of the same class, in the same company, are together called a Section 104 Holding. You add together the costs of the shares in this holding: each share in the holding is then treated as if acquired at the same average cost.
There are a couple of circumstances in which shares will not be regarded as becoming part of the holding. Mainly shares affected by the 'bed and breakfasting' and 'same day' rules.
How to identify the shares disposed of:
When you dispose of shares you cannot work out your capital gain or loss until you have matched the shares disposed of with shares you acquired. You are treated as disposing of shares in the following order:
First - shares acquired on the same day as the disposal (the 'same day' rule).
Second - shares acquired in the 30 days following the day of disposal (the 'bed and breakfasting' rule) provided the person making the disposal was resident in the United Kingdom at the time of the acquisition if the relevant acquisition was on or after 22 March 2007.
Third - shares in the Section 104 holding.
If the above rules fail to exhaust the shares disposed of, the remaining shares are matched with later acquisitions, taking the earliest one first.
The Section 104 holding consists of a single pool of expenditure usually representing the actual cost of shares. The exception to using the actual cost is if you held some of the shares on 31 March 1982. In that case you will need to use the market value of the shares on that day.
If all the shares in the holding are disposed of, the allowable expenditure is all of the pool of cost. If only some of the shares are disposed of, the allowable expenditure is a fraction of the pool of actual cost. The fraction is:
Number of shares sold / Total number of shares in the holding
The remaining cost in the holding, to be identified against future disposals, is reduced accordingly.
Mr Collins bought 10,000 Bits and Bobs plc 25p ordinary shares as follows:
| 16 June 1979 | 2000 shares @ 33 pence/share |
| 2 August 1982 | 2500 shares @ 64 p/s |
| 17 September 1987 | 2500 shares @105 p/s |
| 7 June 1998 | 3000 shares @ 207 p/s |
Currently Mr Collins has a Section 104 Holding of 10,000 shares with a total cost of £11,095 which gives an average price per share of 110.95 p/s
Mr Collins disposes of part of his holding, 5,000 shares, in Bits and Bobs plc on 31 November 2014 @ 517 p/s (net of disposal costs)
Calculate the cost of the shares on a pooled basis:
5,000 shares @ 110.95 p/s = £5,547.50
Calculate the value of the shares disposed of:
5,000 shares @ 517 p/s = £25,850
Calculate taxable gain on the sale by subtracting the cost from the value of the shares disposed of:
£25,850 - £5,547.50 = £20,302.50
Deduct AEA of £11,000 from the gain on the sale:
£20,302.50 - £11,000 = £9,302.50
£9,302.50 is then added to Mr Collins' income for the year to decide what tax rate is used to calculate the Capital Gains Tax payable on the sale.
If a disposal of shares is identified with shares acquired within the following 30 days, the gain or loss on disposal is the difference between the net disposal proceeds and the acquisition cost.
This "bed and breakfasting" rule does not apply to acquisitions made on or after 22 March 2007 if the person who made the disposal was not resident in the United Kingdom for tax purposes at the time of the acquisition.
Mrs Robson bought 2,000 shares in 2012 for a total cost of £3,640. (These shares form a Section 104 holding pool).
On 26 February 2014 she sells 1,500 shares for £10,265 (net of disposal costs).
On 1 March 2014 she buys another 1,800 of the same shares at a cost of £12,420.
The disposal of 1,500 shares is not matched with shares in the pool. It is identified with 1,500 of the shares bought on 1 March 2004.
The gain or loss on this disposal is calculated as follows:
| 26/02/14 | Sold 1,500 shares @ 684.33 p/s for a total of £10,265.00 |
| 01/03/14 | Buy 1,800 shares @ 690.00 p/s for a total of £12,420.00M/b> |
Match 1,500 share purchase and sale within 30 days.
Sale value of 1,500 shares (£10,265.00 x 1500 / 1500) = £10,265.00
Cost of 1,500 shares (£12,420.00 x 1500 / 1800) = £10,350.00
Chargeable loss 2013/14 = £10,265.00 - £10,350.00 = -£85.00
The calculation for shares disposed of and purchased on the 'same day' is the same as it is for Bed & Breakfasting.
Capital Gains Tax, especially including disposals prior to February 2008 can involve complex calculations and as such we would recommend you contact a tax professional for advice in these circumstances as our Support team may only be able to offer limited guidance.
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