12. share disposal

What are the matching rules for company share disposals?

1. same day acquisitions

2. acquisitions in previous 9 days (FIFO)

3. shares from the FA 1985 pool.

What is the FA 1985 pool?

A pooled holding of shares acquired by a company on or after 1 April 1985.

What is an operative event in the FA 1985 pool?

A disposal or acquisition of shares that changes the expenditure in the pool.

• purchase or sale of shares

What information must be tracked in the FA 1985 pool?

Number of shares, original cost, and indexed cost (original cost + indexation).

What is indexed cost in the FA 1985 pool?

Original cost plus indexation allowance.

How is the cost of shares from the FA 1985 pool calculated on disposal?

On a pro-rata basis.

What is the basic gain computation for matched shares?

Proportion of proceeds less cost.

How are gains calculated when different matching rules apply?

A separate gain computation is prepared for each match.

What happens before recording an operative event in the FA 1985 pool?

Indexation allowance must be computed up to the date of the operative event.

When was indexation allowance frozen?

December 2017.

Is indexation allowance added for share acquisitions after December 2017?

No.

What happens to the number of shares and cost after December 2017 acquisitions?

They are added to the pool without any indexation rise.

How is indexation allowance calculated in the FA 1985 pool?

By applying the relevant indexation factor to the cost.

Can indexation allowance create or increase a loss on share disposals?

No.

How is the indexed rise on shares sold calculated from the pool?

Indexed cost less original cost attributable to the shares sold.

What basis is used for matching shares acquired in the previous 9 days?

FIFO basis.

What does FIFO mean?

First in, first out.

Why are matching rules needed for company shares?

To identify which shares are treated as disposed of and determine their cost for chargeable gains purposes.

What happens to the FA 1985 pool after a disposal?

The shares, cost, and indexed cost attributable to the disposal are deducted from the pool.

How are proceeds allocated when shares are matched in separate batches?

Proportionately to each matched batch.

What happens if only part of the FA 1985 pool holding is sold?

A pro-rata share of cost and indexed cost is deducted.

What is deducted from disposal proceeds to calculate the gain on matched shares?

The relevant cost of the shares matched.

Are shares acquired before 1 April 1985 included in the FA 1985 pool?

No.

What is the purpose of the FA 1985 share pool?

To simplify identification and costing of older share acquisitions.

What happens to indexed cost after an operative event?

It is updated to include indexation up to the event date before recording the event.

How should operative events be dealt with?

In chronological order.

What happens to shares matched under same-day or 9-day rules?

They are dealt with separately before using the FA 1985 pool

What are bonus shares?

Shares issued free to shareholders based on their original holdings.

What is a rights issue?

An issue where shareholders can buy additional shares in proportion to their existing holding.

What is the key difference between bonus shares and rights issue shares?

Bonus shares are free, while rights issue shares must be paid for.

How are bonus shares allocated?

In proportion to the shareholder’s existing shareholding.

How are bonus shares treated for acquisition date purposes?

They are treated as acquired on the same date as the original shares.

Do bonus shares require indexation?

No, because there is no additional cost.

Where are bonus shares usually added if the original shares are in the FA 1985 pool?

The FA 1985 pool.

What happens if bonus shares relate to shares matched in the previous 9 days?

They attach pro rata to each match with nil cost.

How are rights issue shares treated for matching purposes?

As acquired on the same day as the original shareholding.

Where do rights issue shares go if the original shares are in the FA 1985 pool?

The FA 1985 pool.

Is a rights issue an operative event for a company?

Yes.

Is a bonus issue an operative event for a company?

No.

Why is indexation required for a rights issue before December 2017?

Because the new shares are acquired at a cost.

What happens to indexation if a rights issue occurs after December 2017?

No indexation is added because indexation is frozen.

What must be done to the FA 1985 pool before adding rights issue shares?

Index the pool to the date of the rights issue.

What happens to the original cost after a rights issue?

It is adjusted by adding the cost of the rights issue shares.

What is a 1 for 2 bonus issue?

One free share is issued for every two shares held.

What is a 1 for 2 rights issue?

One additional paid share is offered for every two shares held.

What is a 1 for 3 rights issue?

One additional paid share is offered for every three shares held.

What is the chapter summary rule for company matching rules?

Same-day acquisitions, previous 9 days on FIFO basis, then FA 1985 share pool.

What must be tracked in the FA 1985 share pool?

Number of shares, cost of shares, and indexed cost.

What do operative events do in the FA 1985 pool?

Increase or decrease the amount of expenditure in the pool.

Are bonus and rights issue shares acquired in proportion to existing holdings?

Yes