The View from No 50





July 2007

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby RoadMenston

IlkleyLS29 6JA

Tel:01943 870933

Fax:01943 870925







The stock market has done well over the last four years or so.Some people are sitting on handsome gains and might be thinking about selling up.††† We all know that if you make a gain when you sell shares you might have to pay capital gains tax.We all know that the gain is the difference between the proceeds of sale and the cost of the shares.But if you only sell part of your holding in a particular company how do you work out the cost of the shares sold and the cost of the shares retained?


Zak has bought shares in Avoiders plc, a company quoted on the London Stock Exchange.His acquisitions have been


Date††††††††††††††††††† Number†††††††††††††††††† Cost


1 January 1995†††††† 1,000††††††††††††††† 10,000

1 January 1998†††††† 1,000††††††††††††††††† 2,000

1 January 2000†††††† 1,000††††††††††††††††† 3,000

1 January 2005†††††† 1,000††††††††††††††††† 5,000


The shares are now quoted at £10 each.


Zak needs to raise £30,000 so he proposes to sell 3,000 shares.


What is Zakís gain?


Unless you know the answer to the question in the title of this article, this is the point at which you pick up the phone to your friendly tax adviser.


Zakís gain is £16,000.


Obvious isnít it?


No, it isnít and that is why anyone who is about to sell shares needs to understand how the capital gains tax share identification rules work.


If you sell part of a holding of shares, the shares you are treated as selling are matched with acquisitions in the following strict order


1.      Acquisitions of the same day

2.      Acquisitions within 30 days after the disposal Ė the earliest re-acquisitions first.

3.      Acquisitions after 5 April 1998 on a last in first out basis.

4.      An Ďaverageí of the cost of any shares purchased in the period 1 April 1982 to 5 April 1998.

5.      The 1965 to 1982 share pool.

6.      Acquisitions before 6 April 1965 on a last in first out basis.


If you are not careful you can end up with a gain far larger than the one you (without the knowledge) expect.


Even stockbrokers get confused sometimes.


A client of ours recently sold part of a holding of shares in a public company.The shares had been acquired in several transactions over a number of years. ††The stockbroker was instructed to sell such a number of shares as would produce a gain of an amount equal to the capital gains tax annual exemption.


Shortly afterwards we were provided with details of the disposal.The stockbroker had clearly not understood the share identification rules.He had sold too many shares and had caused our client to suffer a taxable gain.


All was not lost however.We suggested to our client that he might like to re-acquire some shares in the company within 30 days of the disposal.See the matching rules above.He was willing, indeed pleased to do this, in order to save the tax which would otherwise become payable.This meant that some of the shares sold were matched with the later acquisition rather than an earlier acquisition.As the shares acquired later cost more than the shares acquired earlier the gain was managed down to the desired level and no tax was payable.


So, in the right circumstances, victory can be grasped from the jaws of defeat.


Our Advice:If you hold shares which stand at a gain and which you have acquired in instalments and if you are minded to sell some, you might do well to familiarise yourself with the share identification rules or get in touch with us.We could save you some tax.




It was the cut in the basic rate of tax from 22% to 20% which grabbed all the headlines after the budget in March.


We were all pleased with this cut, even if the benefit is offset by the abolition of the 10% starting rate and the lifting of the national insurance upper earnings limit.


But a cut in the basic rate has a less obvious consequence.Many individuals make regular payments to personal pension schemes.Many make regular gifts to charity.These payments are made net of basic rate tax.The charity collects the basic rate tax from H M Revenue & Customs.


A net payment of £100.00 before the rate change enables the pension fund or charity to claim relief of £28.20 from H M Revenue & Customs, lifting its gross income to £128.20.After the change the amount of tax recoverable is reduced to £25.00 leaving the pension fund or charity with only £125.00.That is a 2.5% reduction in the gross income of the pension fund or charity.


The cut in the basic rate of tax is scheduled to take place on 6 April 2008.


Our Advice:If you hadnít appreciated this consequence of the cut in the basic rate of tax consider whether you should increase your payments to pension schemes and charity.




This is a danger for individuals who earn over £40,000 and who have more than one source of employment income or who have both employment income and income from self employment.


The amount of national insurance you pay on an employment source or a self employment source is calculated without reference to any earnings you might have elsewhere.So if you have two employments with one paying £20,000 and one paying £30,000 each employer will compute your NI deductions independently of the other and you will end up paying too much national insurance.


But surely H M Revenue will notice I have paid too much and will send me a refund?


Yes, there is a reasonable chance that will happen.But this isnít one of HMRCís top priorities.So even if you do get a refund it could arrive years later.


The answer for people who find themselves in this situation is to apply for deferment of payment of national insurance contributions.


A successful applicant pays reduced national insurance contributions during the year.At some time after the end of the year HMRC works out how much, if any, further national insurance is payable.


The advantage with deferment is that you have the benefit of your own money for longer.There is no interest charge on deferred contributions.


The other advantage is that the department which Ďmanagesí this process is so hopelessly inefficient that sometimes it never gets round to calculating the deferred contributions.


Our Advice:If you have more than one source of employment income or a combination of employment income and income from self employment, get in touch with us and find out whether you might be eligible for deferment.




Five surgeons are discussing who makes the best patients to operate on. The first surgeon says, "I like to see accountants on my operating table because when you open them up everything inside is numbered."


The second responds, "Yeah, but you should try electricians! Everything inside them is colour coded."

The third surgeon says, "No, I really think librarians are the best.Everything inside them is in alphabetical order."


The fourth surgeon chimes in: "You know, I like construction workers.Those guys always understand when you have a few parts left over at the end and when the job takes longer than you said it would."


But the fifth surgeon shuts them all up when he observes: "You're all wrong. Footballers are the easiest to operate on. There's no guts, no heart and no spine and the head and butt are interchangeable."


Copyright:K P Bonney & Co LLP 2007.All rights reserved.No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.Disclaimer:The publishers have taken all due care in the preparation of this publication.No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.


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