Capital Gains Tax – Individuals – Shares

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1 Shares and securities

1.1 Gilt edged securities and Qualifying Corporate Bonds

These are exempt assets for individuals.

1.2 Disposal of shares - matching rules

Where shares are disposed of a problem arises in computing the allowable cost as shares in a company may have been acquired over several acquisitions at different costs and on different dates. Therefore HMRC have deemed that when shares in a company are disposed of, they are matched against acquisitions of shares in that company in the following order:

Shares acquired on the same day (as the sale)
Shares acquired within the 30 days following the sale (FIFO)
Shares from the share pool

A separate computation is done for each 'match'.

Note: The matching rules for individuals are different from those that apply to companies.

This keeps a record of the following details of all shares acquired in a company:

number of shares
cost of shares - the number of shares will include all acquisitions including bonus issues and rights issues.
- Bonus issues are where a company issues free shares to its existing shareholders on a proportionate basis to the number of shares already owned.
- Rights Issues are where a company seeks to raise new share capital and offers its existing shareholders the right to acquire additional shares in the company, at an advantageous price, on a proportionate basis to the number of shares already owned .
the shares disposed of from the share pool will be at the average cost of shares held in that pool.

The share pool is easier to produce for individuals than for companies, for as no indexation allowance applies the only information recorded is number of shares and cost of shares.

Jane owns shares in ABC Ltd. She acquired 1,500 shares in the company on 31 May 2020 for £20,000, and 500 shares on 30 June 2021 for £10,000. On 7 July 2025 Jane bought a further 200 shares in ABC Ltd for £4,000.

Jane sold 1,000 shares in ABC Ltd on 28 June 2025 for £25,000.

Calculate Jane’s capital gain on the disposal of the shares on 28 June 2025.

Matching rules:

Match with acquisitions on same day as sale	none
Match with acquisitions in next 30 days	200 shares
Match with share pool	800 shares
	1,000 shares sold

Two computations are therefore needed:

Next 30 days	£	£
Disposal proceeds (200/1,000 × £25,000)	5,000
Less: cost	(4,000)
Chargeable gain		1,000

Share pool
	Number	Cost
		£
31 May 2020	1,500	20,000
30 June 2021	500	10,000
	2,000	30,000
Disposal	(800)	(12,000)
Pool c/fwd	1,200	18,000

	£
Disposal proceeds (800/1,000 × £25,000)	20,000
Less: cost (from pool)	(12,000)
Chargeable gain		8,000
Total chargeable gain		9,000

2 Bonus issues

Bonus shares: An issue of free shares to existing shareholders in proportion to their existing shareholding.

A bonus issue attaches to the shares that created the entitlement, which means that the share pool is increased by the number of shares acquired in the bonus issue but there is no increase in the cost.

Graham had the following transactions in Alderholt Ltd shares:

February 2021	Purchased 7,000 shares for £15,000
June 2021	Purchased 1,000 shares for £4,000
July 2021	Bonus issue of one for five
October 2025	Sold 5,000 shares for £20,000

Calculate Graham's capital gain on the disposal of the shares in October 2025.

Match with acquisitions on same day none
Match with acquisitions in next 30 days none
Match with share pool

	Number	Cost
		£
February 2021	7,000	15,000
June 2021	1,000	4,000
	8,000	19,000
July 2021 Bonus 1:5	1,600	–
	9,600	19,000
October 2025 Disposal	(5,000)	(9,896)
Pool c/fwd	4,600	9,104

Calculate Gain

	£
Disposal proceeds	20,000
Less cost	(9,896)
Capital gain	10,104

3 Rights issue

Existing shareholders have the right to purchase new shares in proportion to their existing shareholding at a price which is usually below market value.

A rights issue attaches to the shares that created the entitlement, which means that the share pool is increased by the number and cost of shares acquired in the rights issue.

Matt had the following transactions in Bromley Ltd shares:

February 2021	Purchased 6,000 shares for £15,000
June 2021	Purchased 900 shares for £2,700
July 2021	Took up 1 for 3 rights issue for £3 per share
September 2025	Sold 6,000 shares for £24,000

Calculate Matt's capital gain on the disposal of the shares in September 2025.

Match with acquisitions on same day none
Match with acquisitions in next 30 days none
Match with share pool

	Number	Cost
		£
February 2021	6,000	15,000
June 2021	900	2,700
	6,900	17,700
July 2021 Rights 1: 3 @ £3.00	2,300	6,900
	9,200	24,600
September 2025 Disposal	(6,000)	(16,043)
Pool c/fwd	3,200	8,557

Calculate Gain

	£
Disposal proceeds	24,000
Less cost (from pool)	(16,043)
Chargeable gain	7,957

4 Takeovers

Where a takeover is a share for share exchange, also known as a paper for paper transaction, the shareholders of the company taken over receive shares in the acquiring company. This normally does not constitute a disposal for CGT purposes as no cash is received and the taxpayer simply acquires shares in the takeover company on a proportionate basis to the shares held in the existing company. The new shares are deemed to have been acquired for the same cost as the original shares.
Mixed consideration: If more than one type of share, for example ordinary and preference shares, are acquired in the takeover company then the cost of the original holding is apportioned to the different components of the new holding on the basis of the market values of the new holding. Thus if a shareholder acquired on takeover ordinary shares valued at £300,000 and preference shares valued at £100,000 in the takeover company, they would be allocated respectively 3/4 and 1/4 of the original shareholding’s cost. These costs may then be used to compute any subsequent gain arising on the sale of either those ordinary or preference shares.

In May 2016 Mark purchased 4,000 ordinary shares in Silver Ltd for £12,000. In June 2023 Silver Ltd was taken over by Gold plc and Mark received 2 ordinary shares and 1 preference share in Gold plc for each ordinary share held in Silver Ltd.

Immediately after the takeover the ordinary shares in Gold plc were valued at £5 and the preference shares in Gold plc were valued at £2.

In July 2025 Mark sold all his holding of ordinary shares in Gold plc for £35,000.

Calculate the capital gain arising on the disposal in July 2025.

	£
Disposal proceeds	35,000
Less Cost (W1)	(10,000)
Capital gain	25,000

Working:

Cost of ordinary shares in Gold plc:

As Mark received both ordinary and preference shares in Gold plc, the cost of his shares in Silver Ltd (£12,000) is divided between his new shareholdings in Gold plc according to the market values of the shares received.

Mark received:

	Market Value	Cost
	£	£
8,000 ordinary shares, valued at £5 =	40,000	10,000
4,000 preference shares, valued at £2 =	8,000	2,000
Total	48,000	12,000

The cost attributable to the ordinary shares is therefore: £12,000 x	40,000	= £10,000
	48,000

If at takeover, some cash is also received, a capital gain will arise on the cash element and needs to be calculated at takeover.

Using Example 4: what difference would it make if Mark received 2 ordinary shares in Gold plc valued at £5 each and £2 cash for each share in Silver Ltd.

Calculate the capital gain arising on the cash at the time of the takeover.

Mark receives at takeover:

	Market Value	Cost
	£	£
8,000 Gold plc ordinary shares	40,000	10,000
Cash	8,000	2,000
Total	48,000	12,000

The original Silver Ltd shares cost of £12,000 is divided between the shares and cash received from Gold plc proportionate to the value received.

As cash has now been received at the time of the takeover an immediate gain arises.

Capital gain in June 2023:

	£
Proceeds (cash received)	8,000
Less cost (from working above)	(2,000)
Chargeable gain	6,000

Section A is an ideal place for the examiner to test your ability to deal with CGT and shares.

Practice question

Winifred gave 10,000 shares in Wills plc to her daughter during 2025/26. The shares were quoted on the Stock Exchange Official List at 120p-136p per share on the day of the sale.

Winifred had acquired 15,000 shares in Wills plc on 1st January 2019 for £4,000.

What is the chargeable gain on the gift of the shares?

Practice question

Herbert purchased 50,000 shares in Grey Ltd for £90,000 on 30 May 2012.

On 1 November 2025 Grey Ltd was taken over by Black plc and shareholders received £3 cash and 2 ordinary £1 shares in Black plc for every Grey Ltd share.

Immediately after the takeover the Black plc shares were worth £1.20 each.

What is Herbert's chargeable gain as a result of the takeover?

Alternatively, the share pool may form part of a larger Section B/C questions. You may have to match the shares first, then do two computations, one of which will contain the working for the share pool and then bring the answers together with other gains/losses and AEA and/or losses brought forward for a complete answer.