Share Matching on a Disposal After a Rights Issue
Marcus has been buying and selling shares in Kestrel plc, a quoted company, over several years. He holds 4,000 shares bought in 2010 at £3.20 each. On 1 August 2024 he sold 3,000 shares for £6.50 each, incurring £450 of broker's commission. On 1 September 2024 he bought 1,000 shares at £5.00 each. On 1 October 2024 he bought 1,500 shares at £5.60 each. On 1 November 2024 Kestrel made a 1-for-4 rights issue at £4.00 per share, which Marcus took up in full. Marcus is a higher-rate taxpayer with no other disposals in 2024/25 and has brought-forward capital losses of £2,000. He asks how much CGT he will pay and whether the timing of the September purchase matters.
1. Apply the share identification rules to the 1 August 2024 disposal and compute the chargeable gain before the annual exempt amount.
Read the worked answer
Order of identification (TCGA 1992 s106A and s105).
- Same-day acquisitions: none.
- Acquisitions in the 30 days after the disposal: 1 September 2024 purchase of 1,000 shares at £5.00.
- The share pool (s104 holding) for the balance.
The 1 October purchase and the November rights issue are outside the 30-day window (the window runs to 31 August 2024), so they do not match the August disposal.
Match 1,000 shares to the 1 September purchase: Proceeds 1,000 × £6.50 = £6,500; allowable cost 1,000 × £5.00 = £5,000; commission apportioned 1,000/3,000 × £450 = £150. Gain = 6,500 − 5,000 − 150 = £1,350.
Match 2,000 shares to the pool: Pool: 4,000 shares, cost £12,800. Proceeds 2,000 × £6.50 = £13,000; commission 2,000/3,000 × £450 = £300; pool cost 2,000/4,000 × £12,800 = £6,400. Gain = 13,000 − 6,400 − 300 = £6,300.
Total gains = £1,350 + £6,300 = £7,650.
Deduct brought-forward losses £2,000 → £5,650. Deduct annual exempt amount £3,000 → taxable gain £2,650.
CGT at 24% (higher-rate taxpayer, shares are not residential property) = £636.
Does the September timing matter? Yes, decisively. Had the 1,000 shares been bought on or after 1 September but outside 30 days, they would not match, and the whole 3,000 would come from the pool. The 30-day rule is a bed-and-breakfast anti-avoidance rule: buying back within 30 days does not 'refresh' base cost - it matches the repurchase price to the disposal.
2. Explain how the 1 November rights issue affects the share pool and whether it creates a chargeable occasion.
Read the worked answer
Rights issue - no disposal. Taking up a rights issue is an acquisition, not a disposal, so no chargeable occasion arises and no gain is computed at that date.
Pool effect. The pool after the August disposal and the September matching holds 2,000 shares. (The 1,000 September shares matched out; the 1,500 October shares are a separate 30-day-matched holding only if there is a disposal within 30 days of that purchase - there is not, so they join the pool.)
Pool before rights: 2,000 + 1,500 = 3,500 shares. Rights entitlement 1 for 4 = 875 shares at £4.00 = £3,500 added to pool cost. New pool: 4,375 shares.
Key judgement. The rights shares are added to the pool at their cost, not by re-basing the original holding. The alternative treatment - sale of the rights nil-paid - does not arise because Marcus took them up in full. If he had sold the rights nil-paid, the sale proceeds would be matched against the pool and a part-disposal computation would be needed.