If you have a holding of shares, Unit trusts and similar investments that you bought all at the same time, when you dispose of the shares the gain is worked out in the way described in this chapter. If you sell only part of the shareholding, you simply scale down the sums by the same fraction that the part you are selling bears to the whole transaction. For example, if you sell only half the shares, take into account only half the initial cost of the total holding.
The fun starts when you have a holding of identical shares that you acquired on more than one date. When you dispose of some of the shares, special rules require you to identify the shares being disposed of with the shares you acquired in a set sequence, as follows:
• shares you acquire within the next 30 days. This measure is designed to stop the practice of ‘bed and breakfasting’, where you sell shares one day and buy them back the next day in order to save tax by realizing a capital gain (for example, to use up your annual allowance) or loss (to set against other gains)
• shares acquired since 6 April 1998, matching the shares you sell to your most recent acquisitions first
• shares acquired after 6 April 1982 up to 5 April 1998. The shares are pooled and an average initial value and indexation allowance calculated
• shares acquired on or after 6 April 1965 (the date on which CGT was first introduced) up to 5 April 1982. The shares are pooled and an average initial value and indexation allowance calculated
• shares you acquired before 6 April 1965, starting with the shares bought most recently. (You can opt instead to include these in the pool of shares acquired from 6 April 1965 to 5 April 1982.)
The matching rules were slightly different where you disposed of shares before 6 April 1998.
Tips for saving capital gains tax
• If you can, use your annual allowance every year.
• If you currently do not use your capital gains tax allowance, consider choosing investments that produce gains which could be tax-free instead of investments that produce taxable income.
• If, say, a husband will be liable for capital gain tax but the wife is not using her annual allowance, the couple may be able to save tax if the husband transfers some assets to the wife before disposal. Transfers between husband and wife are tax-free.
• If you have made a large taxable gain on one asset, consider selling assets that are showing a loss to set off against the gain.
• If you want make gifts to charity, bear in mind that gifts of assets are tax-free. If you give something on which you have made a gain, you will not be taxed on it and you might get income tax relief on the gift But do not give assets on which you have made a loss — instead, sell the asset to realize the loss and give the charity the resulting cash.
• Check whether assets count as business assets for taper relief If they do, you can claim higher relief
• Keep a careful record over the years of all the costs that can be claimed as allowable expenses and all the losses you make.
• The share identification rules have stopped traditional ‘bed and breakfasting’ (selling shares one day and buying them back the next to crystallize a gain or loss), but there are other ways to achieve the same effect. For example, sell shares you own direct and buy them back within an ISA; sell shares you own and get your spouse to buy them back; or sell shares in one company and buy shares in another similar company in the same sector.