Chargeable gains, part 2

This article is relevant to those of you who are taking TX-UK in an exam in the period 1 June 2024 to 31 March 2025, and is based on tax legislation as it applies to the tax year 2023-24 (Finance Act 2023).

The Finance (No. 2) Act 2023 did not receive Royal Assent by the exam cut-off date of 31 May 2023, and is therefore not examinable as regards exams falling in the period 1 June 2024 to 31 March 2025.


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.


The reason that disposals are matched with shares purchased within the following 30 days is to prevent a practice known as bed and breakfasting. Typically, this is where a person sells shares at the close of business one day and then buys them back at the opening of business the next day. By this means, they could previously establish a chargeable gain or a capital loss without a genuine disposal being made. The 30-day matching rule makes bed and breakfasting much more difficult because the subsequent purchase cannot take place within 30 days.


However, it is still possible to achieve a similar result as that prevented by the bed and breakfasting 30-day matching rule:

  • Shares are sold and then an immediate purchase is made of shares by a spouse (or a partner in a registered civil partnership).
  • Shares are sold and then there is an immediate purchase of shares within an individual savings account (ISA).
  • Shares are sold, followed by an immediate purchase of shares in a different company but in the same business sector.

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.


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 (the basis for inheritance tax purposes).


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


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


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.


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


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


Rollover relief

Rollover relief allows a chargeable gain to be deferred (rolled over) where the disposal proceeds received on the disposal of a business asset are reinvested in a new business 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 and used in the trade of the claimant. The most relevant types of qualifying asset as far as TX-UK 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.


Where the disposal proceeds of the old asset are not fully reinvested in the new asset, 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, 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.


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


Gift holdover relief

Gift 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.

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 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.

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


Where business asset disposal relief is available, it may not be beneficial to claim gift holdover relief.


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


Investors’ relief

Where an investment in company shares is concerned, business asset disposal relief is only available where an individual meets a 5% shareholding condition and is also an officer or employee of the company.

However, investors’ relief effectively extends relief to external investors in trading companies which are not listed (unlisted) on a stock exchange. With certain exceptions (such as being an unremunerated director) the investor must not be an employee or a director of the company whilst owning the shares.

There is no minimum shareholding requirement.

Investors’ relief has its own separate £10 million lifetime limit (compared to the business asset disposal relief lifetime limit of £1 million), 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).

Basic capital gains tax planning

CGT planning for married couples has already been covered in part 1 of this article (see example 14).

Delay a disposal until the following tax year
Delaying a chargeable disposal which 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.


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.


Match chargeable gains and capital losses
If a chargeable gain has been made, 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.


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.

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. However, the indexation allowance has been frozen at December 2017.
  • Limited companies can only benefit from rollover relief, and this is applied after taking account of any indexation allowance. They cannot benefit from business asset disposal relief or gift holdover relief.

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:

  • When an asset is purchased prior to December 2017 and subsequently sold, the indexation allowance will be given from the month of acquisition up to December 2017.
  • When an asset is purchased from January 2018 onwards and subsequently sold, no indexation allowance will be available.
  • Where the indexation allowance is available, indexation factors will be provided.
  • The indexation allowance cannot be used to create or increase a capital loss.
  • The indexation allowance is not given on the incidental costs of disposal, so these should be shown separately in the computation if the indexation allowance is available. However, indexation allowance is given on the incidental costs of purchase.

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.



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.

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 examining team