SolvedCG51616 | Share identification rules: the 10 day rule: examples
From HM Revenue & Customs · Capital Gains Manual
The following examples illustrate the operation of the ten day rule. In Example 1 all the shares sold are identified against an acquisition in the ten day period. In Example 2 only some of the shares sold are identified against acquisitions in the ten day period.
EXAMPLE 1
March 2010 a company buys 1,600 shares in C Ltd at a cost of £2.00 per share.
26 September 2013 the company buys a further 1,000 shares at a cost of £10.00 per share.
2 October 2013 the company sells 500 shares at a price of £10.50 per share.
SECTION 104 HOLDING
| Step number/Description | Number of shares | Pool of qualifying expenditure | Indexed pool of expenditure |
|---|---|---|---|
| STEP 1 | 1,600 | £3.200 | £3,200 |
| The acquisition on 26 September is an operative event | - | - | - |
| £3,200 x 0.083 - | - | - | £266 |
| - | 1,600 | £3,200 | £3,466 |
| STEP 2 | - | - | - |
| Compute the capital gain on the disposal on 2 October. Add the balance of the cost of the new shares to both pools | 500 | £5,000 | £5,000 |
| - | 2,100 | £8,200 | £8,466 |
CAPITAL GAIN
The disposal on 2 October is identified solely against the acquisition on 26 September. No indexation allowance is due.
| Description | Calculation | Amount | Total £ |
|---|---|---|---|
| Disposal proceeds | - | - | 5,250 |
| less Cost £10,000 x | 500 | 5,000 | - |
| - | 1,000 | - | - |
| Cost of disposal | - | 50 | 5,050 |
| CHARGEABLE GAIN | - | - | 200 |
This example illustrates how the ten day rule works to the company’s advantage. If the acquisition in September was included in the Section 104 holding the gain would be £3,553 (not illustrated) because the lower cost of the shares in 1987 would reduce the average cost of the shares in the pool.
EXAMPLE 2
March 2010 a company buys 1,600 shares in D Ltd at a cost of £3.00 per share.
29 August 2013 the company buys a further 400 shares at a cost of £10.00 per share.
3 September 2013 the company sells 600 shares for £10.50 per share.
CAPITAL GAIN
The capital gain is made up of two elements.
The disposal of 400 shares is identified against the acquisition on 29 August. No indexation is due on this disposal.
| Description | Amount | Total £ |
|---|---|---|
| Disposal proceeds | - | 4,200 |
| less Cost | 4,000 | - |
| Cost of disposal | 50 | 4,050 |
| CHARGEABLE GAIN | - | 150 |
The disposal of 200 shares is identified against the new holding
| Description | Calculation Amount 1 | multiply | Calculation Amount 2 | Total |
|---|---|---|---|---|
| Pool of indexed expenditure | £5,198 | x | 200 | £650 |
| - | - | - | 1,600 | - |
| Pool of qualifying expenditure | £4,800 | x | 200 | £600 |
| - | - | - | 1,600 | - |
| Indexation | - | - | - | £50 |
| Description | Amount £ |
|---|---|
| Disposal proceeds | 2,100 |
| less Cost | 600 |
| Unindexed gain | 1,500 |
| less Indexation | 50 |
| CHARGEABLE GAIN | 1,450 |
TOTAL GAIN £150 + £1,450 = £1,600
SECTION 104 HOLDING
All shares acquired in August are identified against the disposal. Therefore, there is no operative event in that month.
200 of the shares disposed of in September are identified against the Section 104 holding holding. This is an operative event.
SECTION 104 HOLDING
| Description | Number of shares | Pool of qualifying expenditure | Indexed pool of expenditure |
|---|---|---|---|
| STEP 1 | - | - | - |
| Acquisition March 2010 | 1,600 | £4,800 | £4,800 |
| STEP 2 | - | - | - |
| The disposal in September 2013 is an operative event | - | - | - |
| £4,800 x 0.083 | - | - | £398 |
| - | 1,600 | £4,800 | £5,198 |
| STEP 3 | - | - | - |
| Reduce both pools by the apportioned amounts of cost and indexation | (200) | (£600) | (£217) |
| - | 1,400 | £4,200 | £4,981 |