Section 148: Disposal of shares forming part of mixed holding
493.This section deals with the identification of shares disposed of where those shares form part of a “mixed holding”. It is based on section 576(1) to (1B) and (5) of ICTA, with a number of changes.
494.Section 576(1) of ICTA defines a mixed holding as one which comprises shares for which a person has subscribed and shares which the person has acquired otherwise than by subscription.
495.Subsection (1) provides that this section applies to a holding in which some only of the shares are shares “that are not capable of being qualifying shares” (as defined in section 147(8)). See Change 27 in Annex 1 which contains a detailed explanation of why a mixed holding has been defined in terms of a holding which includes such shares.
496.Subsection (2) provides that the section applies for the purpose of answering the questions:
whether the shares disposed of are qualifying shares; and
which of any qualifying shares acquired at different times are disposed of.
497.This is a change from section 576(1) of ICTA, which is not expressed to apply for the purpose of determining which of any qualifying shares are disposed of. See Change 28 in Annex 1.
498.Subsection (3) introduces the rules for determining the answers to the questions in subsection (2).
499.Section 576(1) of ICTA, on which subsection (3)(a) is based, identifies the shares disposed of on a last in first out (LIFO) basis. Section 576(1) of ICTA and its predecessor, section 37 of FA 1980, were enacted at a time when shares were pooled and treated as a single asset for capital gains tax purposes. Accordingly, it was and remains necessary to have a rule identifying the order in which shares in the pool are disposed of, in order to ensure that share loss relief is obtained only on the disposal of qualifying shares.
500.FA 1998 made changes to the identification rules in TCGA, as a result of which shares acquired on or after 6 April 1998 are not pooled but, on a disposal, are in most cases identified on a LIFO basis.
501.Taking account of those changes, subsection (3)(a) applies the FA 1998 rules (see subsection (4)) or, in the case of shares acquired on different dates before 6 April 1998, a specific LIFO rule (see subsection (5)). See Change 29 in Annex 1.
502.Subsection (3)(b) is based on section 576(1A) of ICTA and applies the rules in subsection (6), based on section 576(1B) of that Act, if the mixed holding includes any of:
shares issued before 1 January 1994 to which business expansion scheme relief is attributable;
shares to which EIS income tax relief is attributable; and
shares to which EIS deferral relief is attributable.
503.Subsection (7) is new and puts on a statutory basis the practice under which questions which cannot be determined by the specific provisions of this section are to be determined on a just and reasonable basis. This subsection will principally be required in cases where some but not all of the shares of the same class acquired, or treated as having been acquired, on the same day are shares that are not capable of being qualifying shares. See Change 29 in Annex 1.
