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This is the Finance Act 2017 version of this article. It is relevant for candidates sitting the Taxation – United Kingdom (TX-UK) (F6) exam in the period 1 June 2018 to 31 March 2019. Candidates sitting TX-UK (F6) after 31 March 2019 should refer to the Finance Act 2018 version of this article (to be published on the ACCA website in 2019).

From the September 2018 session, a new naming convention is being introduced for all of the exams in the ACCA Qualification, so from that session, the name of the exam will be Taxation – United Kingdom (TX-UK). June 2018 is the first session of a new exam year for tax, when the exam name continues to be F6 Taxation (UK). Since this name change takes place during the validity of this article, TX-UK (F6) has been used throughout.

Shares

The disposal of shares can create a particular problem. This is because the shares disposed of might have been purchased at different times, and it is then difficult to identify exactly which shares have been sold. Disposals of shares are matched with purchases in the following order:

  • Shares purchased on the same day as the disposal.
  • Shares purchased within the following 30 days.
  • Shares in share pool.


The share pool aggregates all purchases made up to the day of the disposal.

EXAMPLE 23
Ivy has had the following transactions in the shares of Jing plc:

1 June 2010 – Purchased 4,000 shares for £6,200.
30 April 2015 – Purchased 2,000 shares for £8,800
15 July 2017 – Purchased 500 shares for £2,500
15 July 2017 – Sold 4,500 shares for £27,000

Ivy’s chargeable gain for 2017–18 is:

 ££ 
Purchase 15 July 2017   
Disposal proceeds
(27,000 x 500/4,500)

3,000
  
Cost(2,500)  
  500 
Share pool   
Disposal proceeds
(27,000 x 4,000/4,500)

24,000
  
Cost(10,000)  
  14,000 
  14,500 



Share pool

 NumberCost
£
 
Purchase 1 June 20104,0006,200 
Purchase 30 April 20152,0008,800 
 6,00015,000 
Disposal 15 July 2017 (15,000 x 4,000/6,000) 
(4,000)

(10,000)
 
Balance carried forward
2,0005,000 


The disposal is first matched with the same day purchase and then against the share pool.

The reason that disposals are matched with shares purchased within the following 30 days is to prevent a practice known as bed and breakfasting. A person might sell shares at the close of business one day and then buy them back at the opening of business the next day. Previously, a chargeable gain or a capital loss could thus be established without a genuine disposal being made. The 30-day matching rule makes bed and breakfasting much more difficult, since the subsequent purchase cannot take place within 30 days.

EXAMPLE 24
Keith purchased 1,000 shares in Long plc on 5 July 2017 for £10,000. The shares have fallen in value, so he would like to establish a capital loss. Therefore, the shares were sold on 2 December 2017 for £2,000 and purchased back on 10 December 2017 for £1,900.

Keith’s transactions are caught by the 30-day matching rule. The disposal on 2 December 2017 will be matched with the purchase on 10 December 2017, and for 2017–18 he will therefore have a chargeable gain of £100 (2,000 – 1,900).

With individuals, it might be necessary to establish a market value figure where the shares are disposed of by way of a gift rather than being sold.

The market value of an asset is used rather than the actual proceeds when a gift is made between family members because they are connected persons.

EXAMPLE 25
Maude made a gift of her entire shareholding of 10,000 £1 ordinary shares in Night plc to her daughter. On the date of the gift, the shares were quoted at £5.10 – £5.18.

  • Maude and her daughter are connected persons, so the market value of the gifted shares is used.
  • The shares in Night plc are valued at £5.14 ((£5.10 + £5.18)/2), being the mid-price based on the day’s quoted price.
  • Any bargain prices are not relevant to the calculation.
  • The deemed proceeds figure is therefore £51,400 (10,000 x 5.14).


Where an unquoted company is concerned, a share valuation is based on the market value of the shares gifted rather than the diminution in value (this is the basis for inheritance tax purposes).

EXAMPLE 26
On 4 May 2017, Daniel made a gift to his son of 15,000 £1 ordinary shares in ABC Ltd, an unquoted investment company. Before the transfer, Daniel owned 60,000 shares out of ABC Ltd’s issued share capital of 100,000 £1 ordinary shares. ABC Ltd’s shares are worth £18 each for a holding of 60%, £10 each for a holding of 45% and £8 each for a holding of 15%.

The value of the gifted shares is £120,000 (15,000 x £8).

With a bonus issue, there is no additional cost involved. The only thing which changes is the number of shares held.

EXAMPLE 27
On 22 January 2018, Oliver sold 30,000 £1 ordinary shares in Pink plc for £140,000. Oliver had purchased 40,000 shares in Pink plc on 9 February 2016 for £96,000. On 3 April 2017, Pink plc made a 1 for 2 bonus issue.

Oliver’s chargeable gain for 2017–18 is:

 £ 
Disposal proceeds140,000 
Cost(48,000) 
 92,000 


  • Oliver was issued with 20,000 (40,000 x 1/2) new ordinary shares as a result of the bonus issue.
  • The cost of the shares sold is therefore £48,000 (96,000 x 30,000/(40,000 + 20,000)).


With a rights issue, the new shares are paid for and so the cost figure will have to be adjusted.

EXAMPLE 28
On 22 January 2018, Quinn sold 30,000 £1 ordinary shares in Red plc for £140,000. Quinn had purchased 40,000 shares in Red plc on 9 February 2015 for £100,000. On 3 May 2017, Red plc made a 1 for 2 rights issue. Quinn took up her allocation under the rights issue in full, paying £3.00 for each new share issued.

Quinn’s chargeable gain for 2017–18 is:

 £ 
Disposal proceeds140,000 
Cost(80,000) 
 60,000 


  • Quinn was issued with 20,000 (40,000 x 1/2) new ordinary shares under the rights issue at a cost of £60,000 (20,000 x £3.00).
  • The cost of the shares sold is therefore £80,000 ((100,000 + 60,000) x 30,000/(40,000 + 20,000)).


A paper for paper takeover or reorganisation is not a chargeable disposal. The new shares simply take the place of the original shares and are deemed to have been purchased at the same time and for the same cost. Where more than one class of new share is acquired as a result of the takeover/reorganisation, the original cost is apportioned according to the market values of the new shares immediately after the takeover/reorganisation.

EXAMPLE 29
On 28 March 2018, Rita sold her entire holding of £1 ordinary shares in Sine plc for £55,000. Rita had originally purchased 10,000 shares in Sine plc on 5 May 2015 for £14,000. On 7 August 2016, Sine plc had a reorganisation whereby each £1 ordinary share was exchanged for two new £1 ordinary shares and one £1 preference share. Immediately after the reorganisation, each £1 ordinary share in Sine plc was quoted at £2.50 and each £1 preference share was quoted at £1.25.

Rita’s chargeable gain for 2017–18 is:

 £ 
Disposal proceeds55,000 
Cost(11,200) 
 43,800 


  • Under the reorganisation, Rita received new ordinary shares valued at £50,000 (2 x 10,000 x £2.50) and preference shares valued at £12,500 (10,000 x £1.25).
  • The cost attributable to the ordinary shares is therefore £11,200 (14,000 x 50,000/(50,000 + 12,500).


Where cash is received on a takeover, then the normal disposal rules will apply.

EXAMPLE 30
Chai purchased 12,000 £1 ordinary shares in Beta Ltd on 27 July 2010 for £23,900. On 15 July 2017, Beta Ltd was taken over by ABC plc and Chai received £6 for each of her shares in that company.

Chai’s chargeable gain for 2017–18 is:

 £ 
Disposal proceeds
(12,000 x £6)

72,000
 
Cost(23,900) 
 48,100 


Where a takeover is partly for shares and partly for cash, then the part disposal rules will apply.

EXAMPLE 31
Richard purchased 10,000 £1 ordinary shares in Split plc on 21 July 2014 for £23,100. On 28 August 2017, Split plc was taken over by Combined plc. For each of his £1 ordinary shares in Split plc, Richard received two £1 ordinary shares in Combined plc plus £2.50 in cash. Immediately after the takeover, Combined plc’s £1 ordinary shares were quoted at £4.00.

Richard’s chargeable gain for 2017–18 is:

 £ 
Disposal proceeds
(10,000 x £2.50)

25,000
 
Cost(5,500) 
 19,500 


  • On the takeover, Richard received cash of £25,000 and ordinary shares in Combined plc valued at £80,000 (2 x 10,000 x £4.00).
  • The cost attributable to the cash element is therefore £5,500 (23,100 x 25,000/(25,000 + 80,000)).

Rollover relief

Rollover relief allows a chargeable gain to be deferred (rolled over) where the disposal proceeds of the old asset are reinvested in a new asset. The deferral is achieved by deducting the chargeable gain from the cost of the new asset.

To qualify for rollover relief, both the old asset and the new asset must be qualifying assets. The most relevant types of qualifying asset as far as TX-UK (F6) is concerned are:

  • Land and buildings
  • Fixed plant and machinery
  • Goodwill


It is not necessary for the old asset and the new asset to be in the same category.

EXAMPLE 32
What are the conditions which must be met in order that rollover relief can be claimed?

  • The reinvestment must take place between one year before and three years after the date of disposal.
  • The old and new assets must both be qualifying assets and be used for business purposes.
  • The new asset must be brought into business use at the time that it is acquired.


Where the disposal proceeds of the old asset are not fully reinvested in the new asset, then the amount not reinvested remains chargeable and the amount of gain which can be rolled over is correspondingly reduced. Therefore, if the amount not reinvested is greater than the chargeable gain, the full gain will be immediately chargeable and no rollover relief will be available.

Where the new asset is a depreciating asset, then the gain does not reduce the cost of the new asset but is instead held over. A depreciating asset is an asset with a predictable life of less than 60 years. The only types of depreciating asset which you need to be aware of are fixed plant and machinery and short leaseholds.

EXAMPLE 33
Violet sold a factory on 15 August 2017 for £320,000 and this resulted in a chargeable gain of £85,000. She is considering the following alternative ways of reinvesting the proceeds from the sale of her factory:

  • A freehold warehouse can be purchased for £340,000.
  • A freehold office building can be purchased for £275,000.
  • A leasehold factory on a 40-year lease can be acquired for a premium of £350,000.
  • A freehold factory can be purchased for £230,000.


The reinvestment will take place during November 2017.


Freehold warehouse

  • The sale proceeds are fully reinvested, so the whole of the chargeable gain can be rolled over.
  • The base cost of the warehouse will be £255,000 (340,000 – 85,000).


Freehold office building

  • The sale proceeds are not fully reinvested, so £45,000 (320,000 – 275,000) of the chargeable gain cannot be rolled over. This amount will be chargeable in 2017–18.
  • The base cost of the office building will be £235,000 (275,000 – (85,000 – 45,000)).


Leasehold factory

  • The sale proceeds are fully reinvested, so the whole of the chargeable gain can be held over.
  • The factory is a depreciating asset, so the base cost of the factory will not be adjusted.
  • The chargeable gain will be held over until the earlier of November 2027 (ten years from the date of acquisition), the date that the factory is sold, or the date that it ceases to be used in the business.


Freehold factory

  • No rollover relief will be available because the amount not reinvested of £90,000 (320,000 – 230,000) exceeds the chargeable gain. The chargeable gain of £85,000 will therefore be taxed in 2017–18.
  • The base cost of the factory will remain at £230,000.


When the asset disposed of was not used entirely for business purposes, then the proportion of the chargeable gain relating to the non-business use does not qualify for rollover relief.

EXAMPLE 34
Willow sold a freehold factory on 8 November 2017 for £146,000 and this resulted in a chargeable gain of £74,000. The factory was purchased on 15 January 2015. 75% of the factory had been used for business purposes by Willow as a sole trader, but the other 25% was never used for business purposes. Willow purchased a new freehold factory on 10 November 2017 for £156,000.

Willow’s chargeable gain for 2017–18 is:

 £ 
Gain74,000 
Rollover relief (74,000 – 18,500)(55,500) 
 18,500
 


  • The proportion of the chargeable gain relating to non-business use is £18,500 (74,000 x 25%), and this amount does not qualify for rollover relief.
  • The sale proceeds are fully reinvested, so the balance of the gain can be rolled over.
  • The base cost of the new factory is £100,500 (156,000 – 55,500).

Holdover relief

Holdover relief allows a chargeable gain to be deferred (held over) when a gift is made of a qualifying business asset. The deferral is achieved by deducting the chargeable gain of the donor who has made the gift from the base cost of the donee who has received the gift.

Holdover relief is also available when a sale is made at less than market value. In this case, any excess of sale proceeds over the original cost of the asset will be immediately chargeable.

As far as TX-UK (F6) is concerned, the most relevant types of qualifying business asset are:

  • Assets used for trade purposes by a sole trader.
  • Shares in a personal company (where the individual has at least a 5% shareholding).
  • Shares in unquoted trading companies.


EXAMPLE 35
On 15 August 2017, Xia sold 10,000 £1 ordinary shares in Yukon Ltd, an unquoted trading company, to her daughter for £75,000. The market value of the shares on that date was £110,000. The shareholding was purchased on 10 July 2016 for £38,000. Xia and her daughter have elected to hold over the gain as a gift of a business asset.

Xia’s chargeable gain for 2017–18 is:

 £ 
Deemed proceeds110,000 
Cost(38,000) 
 72,000 
Holdover relief
(72,000 – 37,000)

(35,000)
 
 37,000 


  • Xia and her daughter are connected persons, and therefore the market value of the shares sold is used.
  • The consideration paid for the shares exceeds the allowable cost by £37,000 (75,000 – 38,000). This amount is immediately chargeable to capital gains tax (CGT).
  • The daughter’s base cost will be £75,000 (110,000 – 35,000).


If a gift is going to result in an immediate chargeable gain, then it might be possible to restrict the gain to the amount of the annual exempt amount or any available capital losses.

EXAMPLE 36
Bertie has a holding of 6,000 £1 ordinary shares in Gift Ltd, an unquoted trading company, which he had originally purchased for £3.50 per share. The current market value of the shares is £8.50, but Bertie is going to sell some of the holding to his son at £6.00 per share during the tax year 2017–18. Bertie and his son will elect to hold over any gain as a gift of a business asset.

  • The consideration paid for each share will exceed the allowable cost by £2.50 (6.00 – 3.50), and this amount will be immediately chargeable to CGT.
  • The annual exempt amount for 2017–18 is £11,300, so Bertie can sell 4,520 shares (11,300/2.50) to his son without this resulting in any CGT liability.


Where entrepreneurs’ relief is available, it may not be beneficial to claim holdover relief.

EXAMPLE 37
On 10 April 2017, Pia made a gift of her entire holding of 60,000 £1 ordinary shares (a 60% shareholding) in Zuper Ltd, an unquoted trading company, to her daughter Rita. Pia had purchased the shares on 1 June 2007 for £60,000, and was an employee of the company from that date until 10 April 2017. The market value of the shares on 10 April 2017 was £260,000.

Rita sold the 60,000 £1 ordinary shares in Zuper Ltd on 28 March 2018 for £270,000. She has never been an employee or a director of the company.

Both Pia and Rita are higher rate taxpayers, and neither of them made any other chargeable gains during the tax year 2017-18.

No election for holdover relief
Pia’s CGT liability for 2017–18 is:

 £
 
Deemed proceeds
260,000
 
Cost
(60,000) 
 200,000
 
Annual exempt amount
(11,300) 
 188,700
 
Capital gains tax:
188,700 at 10%

18,870
 


Rita will not have a CGT liability for 2017–18 because her chargeable gain of £10,000 (270,000 – 260,000) is less than the annual exempt amount.

Election for holdover relief
Rita’s CGT liability for 2017–18 is:

 ££ 
Disposal proceeds 270,000 
Cost260,000  
Held over again200,000  
  (60,000) 
  210,000 
Annual exempt amount (11,300) 
  198,700 
Capital gains tax:
198,700 at 20%
 
39,740
 


  • Rita’s disposal does not qualify for entrepreneurs’ relief because she was not an officer or an employee of Zuper Ltd, and she has not met the qualifying conditions for one year prior to the date of disposal.
  • A claim for holdover relief will result in an overall CGT liability of £39,740 compared to £18,870 if no claim is made. A claim is therefore not beneficial.


Where the disposal consists of shares in a personal company, holdover relief will be restricted if the company has chargeable non-business assets.

EXAMPLE 38
On 5 October 2017, Zia made a gift of her entire holding of 20,000 £1 ordinary shares in Apple Ltd, a personal company, to her daughter. The market value of the shares on that date was £200,000. The shares had been purchased on 1 January 2015 for £140,000. On 5 October 2017, the market value of Apple Ltd’s chargeable assets was £150,000, of which £120,000 was in respect of chargeable business assets. Zia and her daughter have elected to hold over the gain as a gift of a business asset.

Zia’s chargeable gain for 2017–18 is:

 £ 
Deemed proceeds200,000 
Cost(140,000) 
 60,000 
Holdover relief(48,000) 
 12,000 


Holdover relief is restricted to £48,000 (60,000 x 120,000/150,000), being the proportion of chargeable assets to chargeable business assets.

Investors’ relief

Where an investment in company shares is concerned, entrepreneurs’ relief is only available where an individual has a minimum 5% shareholding and is also an officer or employee of the company.

However, investors’ relief extends relief to external investors in trading companies which are not listed (unlisted) on a stock exchange. Investors’ relief has its own separate £10 million lifetime limit, with qualifying gains being taxed at a rate of 10%. To qualify for investors’ relief, shares must be:

  • Newly issued shares acquired by subscription.
  • Owned for at least three years after 6 April 2016 (when investors’ relief was introduced).


Given the three-year holding period, investors’ relief will not be available as such until the tax year 2019–20. Therefore, you just need to be aware of the tax advantages offered by investors’ relief and the qualifying conditions.

Basic capital gains tax planning

CGT planning for married couples has already been covered in part 1 of this article (see example 11).

Delay a disposal until the following tax year
Delaying a chargeable disposal that is going to be made towards the end of a tax year until the beginning of the next tax year, will postpone the resulting CGT liability by one year.

EXAMPLE 39
Zach is going to make a chargeable disposal on 5 April 2018.

If Zach makes the disposal on 5 April 2018 (tax year 2017-18), then the due date for the CGT liability will be 31 January 2019. If he postpones the disposal by one day until 6 April 2019 (tax year 2018–19), then the due date will be one year later – 31 January 2020.

Spread a disposal over two tax years
Spreading a disposal over two tax years will mean that two annual exempt amounts are available. For a basic rate taxpayer, more of the gain will be taxed at the lower rate of CGT. Such planning works particularly well with quoted shares since a disposal can easily be divided into two.

EXAMPLE 40
Juliet’s taxable income for the tax years 2017–18 and 2018–19 will be £20,000. During March 2018, she is going to dispose of 50,000 £1 ordinary shares in Great plc, and this will result in a chargeable gain of £2 per share.

Juliet will not make any other disposals during the tax years 2017–18 and 2018–19.

Based on the rates and allowances for the tax year 2017–18, Juliet should postpone the disposal of 12,400 shares in Great plc until the tax year 2018-19. The resulting chargeable gain of £24,800 (12,400 x £2) will enable her annual exempt amount of £11,300 and unused basic rate tax band of £13,500 (33,500 – 20,000) for 2018–19 to be utilised. The CGT saving will be £3,610:

 £ 
Annual exempt amount  
11,300 at 20%
2,260 
Lower rate tax saving 13,500 at
10% (20% – 10%)
1,350 
Holdover relief3,610 


Match chargeable gains and capital losses
If a chargeable gain has been made, then investments standing at a loss could be disposed of during the same tax year in order to create a capital loss. However, care needs to be taken so that the annual exempt amount is not wasted.

EXAMPLE 41
Som is a higher rate taxpayer and has already made a chargeable gain of £29,000 for the tax year 2017-18. She has 20,000 £1 ordinary shares in Worthless plc which are currently standing at a capital loss of £3.00 per share.

Som could dispose of 5,900 shares in Worthless plc before 5 April 2018. The resulting capital loss of £17,700 (5,900 x £3) will reduce her taxable gains to nil (29,000 – 17,700 – 11,300).

In the exam

  • Make sure that you identify any exempt disposals.
  • Remember that higher rates of CGT apply to chargeable gains arising from the disposal of residential property.
  • An unincorporated business is not treated as a separate entity for CGT purposes. Therefore, when a business is disposed of you should deal with each asset separately.
  • Do not forget to deduct the annual exempt amount if it is available.
  • When dealing with shares, it is important to look carefully at the dates to see if same day or 30-day matching is applicable.
  • It is important to establish how much of a person’s basic rate tax band is available. Remember that a taxable income figure is after the personal allowance has been deducted.


EXAMPLE 42
On 13 July 2017, Dear sold 1,000 of her 3,000 £1 ordinary shares in XYZ plc for £6,600. She died on 5 April 2018, and the remaining 2,000 shares were inherited by her daughter. On that date, these shares were valued at £15,600. The holding of 3,000 shares had been purchased on 20 June 2010 for £4,800.

  • There is no CGT liability on the sale of the XYZ plc shares because the gain of £5,000 (6,600 – (4,800 x 1,000/3,000)) is less than the annual exempt amount (note that it should be obvious that where sales proceeds are just £6,600, then there is no CGT liability).
  • The transfer of the XYZ plc shares on Dear’s death is an exempt disposal.

An overview of corporate chargeable gains

You have seen how individuals are subject to CGT. Although there are a lot of similarities in the way in which the chargeable gains of a limited company are taxed, there are also some very important differences:

  • A limited company’s chargeable gains form part of taxable total profits. They are not taxed separately.
  • The annual exempt amount is not available.
  • An indexation allowance is given when calculating chargeable gains for a limited company.
  • Limited companies can only benefit from rollover relief, and this is applied after taking account of any indexation allowance. They cannot benefit from entrepreneurs’ relief or holdover relief for the gift of business assets.

Basic computation

The basic computation for a limited company is virtually the same as for an individual. However, you may also be expected to calculate the indexation allowance:

  • The indexation allowance is given from the month of acquisition up to the month of disposal.
  • The indexation factor is normally rounded to three decimal places.
  • The indexation allowance cannot be used to create or increase a capital loss.
  • Because the indexation allowance is not available in respect of the incidental costs of disposal, it is necessary to show these separately in the computation.


EXAMPLE 43
Delta Ltd sold a factory on 15 February 2018 for £420,000. The factory was purchased on 24 October 1995 for £164,000, and was extended at a cost of £37,000 during March 1997.

Delta Ltd incurred legal fees of £3,600 in connection with the purchase of the factory, and legal fees of £6,200 in connection with the disposal. Retail price indices (RPIs) are as follows:

October 1995149.8
March 1997155.4
February 2018275.0


 ££ 
Disposal proceeds 420,000 
Incidental costs of disposal 
(6,200)
 
  413,800 
Cost164,000  
Incidental costs of acquisition
3,600
  
 167,600  
Enhancement expenditure
37,000

(204,600)
 
  209,200 
Indexation
– Cost 167,600 x 0.836
– Enhancement
37,000 x 0.770

140,114

28,490
  
  (168,604) 
  40,596 


  • The indexation factor for the cost is 0.836 ((275.0 – 149.8)/149.8), and for the enhancement expenditure it is 0.770 ((275.0 – 155.4)/155.4).


When a limited company has a capital loss, it is first set off against any chargeable gains arising in the same accounting period. Any remaining capital loss is then carried forward and set off against the first available chargeable gains of future accounting periods.

Although chargeable gains are included as part of a company’s taxable total profits, capital losses are never set off against other income.

EXAMPLE 44
Even Ltd’s results are:

 Year ended
31 March 2018
£
Year ended
31 March 2019
£
 
Trading profit/(loss)56,000(17,000) 
Property business income4,00010,000 
Chargeable gain/
(capital loss)

(8,000)

85,000
 


The corporation tax liability of Even Ltd for the years ended 31 March 2018 and 2019 is:

 Year ended
31 March 2018
£
Year ended
31 March 2019
£
 
Trading profit
56,0000 
Property business income4,00010,000 
Chargeable gain
_____077,000 
 60,00087,000 
Loss relief_____0(17,000) 
Taxable total profits60,00070,000 
Corporation tax at 19%11,40013,300 


  • The capital loss for the year ended 31 March 2018 is carried forward, so the chargeable gain for the year ended 31 March 2019 is £77,000 (85,000 – 8,000).

Shares

For limited companies, disposals of shares are matched with purchases in the following order:

  • Shares purchased on the same day as the disposal.
  • Shares purchased during the nine days prior to the disposal.
  • Shares in the 1985 pool.


When calculating indexation allowances for the 1985 pool, the indexation fraction is not rounded to three decimal places.

EXAMPLE 45
On 15 February 2018, Fair Ltd sold 70,000 £1 ordinary shares in Gong plc for £425,000. Fair Ltd had originally purchased 40,000 shares in Gong plc on 10 June 1995 for £110,000, and purchased a further 60,000 shares on 20 August 1999 for £180,000. Retail price indices (RPIs) are as follows:

June 1995149.8
August 1999165.5
February 2018275.0


 

Chargeable gain

 £ 
Disposal proceeds425,000 
Indexed cost(350,721) 
 74,279 


 

1985 Pool

 Number
£
Index cost
£
 
Purchase June 199540,000110,000 
Indexation to
August 1999
  110,000 x
  (165.5 – 149.8)/149.8
 


11,529
 
  121,529 
Purchase
August 1999

60,000

180,000
 
 100,000301,529 
Indexation to
February 2018
  301,529 x
  (275.0 – 165.5)/165.5
 


199,501
 
  501,030 
Disposal February 2018
  501,030 x 70,000/
  100,000


(70,000)


(350,721)
 
Balance carried forward30,000150,309 


In the exam

  • Remember that limited companies are not entitled to the annual exempt amount.
  • Remember that chargeable gains are part of a limited company’s taxable total profits. They are not taxed separately.
  • When dealing with shares, it is important to look carefully at the dates to see if same day or nine-day matching applies.


Written by a member of the TX-UK (F6) examining team

Last updated: 22 Feb 2018