Tax and your investments

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887

15. Disposal of a holding with a history

Please note that the below is just for reference, as indexation and taper relief were abolished in April 2008.

Supposing you own 1,500 shares in Multimower plc. You bought:

600 on 1st May 1973
650 on 6th August 1984
250 on 10th December 1998

Then, in May 2000 you sell 1,000 of them. The question is - which 1,000 did you sell? Were they (600 from 1973 + 400 from 1984) or were they (250 from 1998 + 650 from 1984 + 100 from 1973)?

It's an important point, because the indexation and taper reliefs depend on the acquisition dates, and you can't decide the dates until you know which shares have been sold. If it was up to you, it would be great as you could choose when and where to take the reliefs, but in fact you have no choice in the matter.

HMRC lays down strict rules about disposal of holdings acquired over time. Disposals are matched with acquisitions according to a strict order, which is:

acquisitions on the same day
acquisitions during the following 30 days on a FIFO basis*
acquisitions between 6th April 1998 and the date of disposal on a LIFO basis
acquisitions between 31st March 1982 and 5th April 1998
acquisitions between 6th April 1965 and 30th March 1982
acquisitions before 6th April 1965 on a LIFO basis

That's a fussy list that is best illustrated by looking at the Multimower example. You sold 1,000 shares in May 2000 which were acquired in 1973, 1984 and 1998. HMRC will assume that:

the first 250 were the ones bought on 10th December 1998 (taper relief only)
the next 650 were the ones bought on 6th August 1984 (indexation and taper relief)
the last 100 were part of the holding bought on 1st May 1973 (indexation and taper relief)

You would need to work out your base costs for each tranche on this basis. The 500 shares you still hold in Multimower are assumed to be the balance of what you bought in 1973.

*This rule is designed specifically to stamp out "bed and breakfasting". By matching a sale with a purchase made in the next 30 days, investors are discouraged from selling and then immediately re-buying a share just for the purpose of establishing a gain or loss. Now, if you do that, the sale is not matched with an earlier purchase, but with your later re-purchase.

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