Share matching rules

This worked example looks at the share identification rules that should be followed when there is a disposal of shares in a company, for capital gains tax purposes.

Because one batch of shares or securities of the same class in a company are effectively indistinguishable from another batch, special identification rules are needed to match disposals with multiple acquisitions.

For example, on 1 January 2004, Elsa sells 500 shares in Juniper PLC. She had originally inherited 500 shares in 1996 and bought another 500 on 31 December 2013. How do we know which shares are sold to enable us to calculate the gain? The share identification rules prescribe this for us.

What are the rules?

The capital gains tax regime underwent a substantial revamp in 2008 and the share identification rules formed part of the reforms. The rules are therefore different for disposals occurring on or after 6 April 2008 than they were previously. This article just looks at the rules as they have applied since 6 April 2008.

Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:

  1. acquisitions on the same day as the disposal;
  2. acquisitions within 30 days after the day of disposal (thus countering 'bed and breakfasting');
  3. shares comprised in the 'section 104 holding' (see below);
  4. if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

In the above list, 1, 2 and 4 are easy to understand but what about number 3, the section 104 holding?

Section 104 holding

Taxation of Chargeable Gains Act (TCGA) 1992, s104 tells us that:

'Any number of securities of the same class acquired by the same person in the same capacity shall for the purposes of this Act (subject to express provision to the contrary) be regarded as indistinguishable parts of a single asset growing or diminishing on the occasions on which additional securities of the same class are acquired or some of the securities of that class are disposed of.'

This effectively means that all shares, apart from those in 1, 2 and 4 above, are pooled and treated as a single asset. When a proportion of the shares held within the pool are sold, the value of the pool of share is apportioned to determine the base cost of the shares being sold.

Any shares which were held at 1 April 1982 are subject to the 'general re-basing rule', as prescribed by TCGA 1992, s35(4). This means that, for capital gains tax purposes, the shares are treated as having been acquired at their market value as at 1 April 1982 and the actual cost becomes irrelevant. There is an exception to this rule if the client has made a global election by 6 April 1990 for actual cost to apply, in which case, original cost will normally apply.

It should be remembered that indexation no longer applies to disposals made by individuals and trusts.

Let us now consider these rules by way of an example:

On 14 January 2014, Mr Monk sells 500 Ordinary £1 shares in Lion PLC. The share were acquired as follows:

Number of shares:

Transaction details:

Base cost:



Bought 8 May 1977 – cost £1,200

Market value as at 1 April 1982 - £2,000 (no global election made)




Bought 6 June 1988 – cost £2,400




Sold 14 January 2014 – Proceeds £10,000



Bought 14 January 2014 – cost £3,000




Bought – 2 February 2014 – cost £3,500



The capital gain would be as follows:





14 January 2014 Sold 1,200 Lion PLC ordinary shares – Proceeds £8,000



Base cost:

  1. Shares acquired on the same day:
    500 shares – Cost £3,500

  2. Shares acquired within 30 days:
    500 shares – Cost £3,500

  3. 200 from s104 holding:
    200/1,000 x [2,000 + 2,400]

Total cost of disposal





Chargeable gain




Mr Monk would be left with a residual 800 shares in Lion PLC with a base cost of [£2,000 + £2,400 - £880=] £3,520.