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ITA07/S147 starts with the premise that an individual has disposed of qualifying shares and sets out three groups of circumstances in which the amount of Share Loss Relief available on that disposal may need to be limited to a figure below the allowable loss computed for TCGA 1992 purposes.

The second group of circumstances is where the qualifying shares disposed of, along with other shares that are not capable of being qualifying shares, are treated as acquired by a single transaction by virtue of TCGA92/S105(1)(a).

TCGA92/S105 is part of the share identification rules which apply when computing chargeable gains and allowable losses on disposals of shares. There is detailed guidance at +. In summary, where shares of the same class in the same company are acquired by the same person on the same day and in the same capacity then all the shares so acquired are treated as acquired by a single acquisition (and they are identified firstly with similar shares disposed of on the same day and which are likewise treated as disposed of by a single transaction). This treatment by the TCGA takes no account of whether or not the shares are capable of being qualifying shares for Share Loss Relief purposes, so again there is a risk of the allowable loss under the TCGA rules being inflated because of interaction with costs incurred in respect of non-qualifying shares.

Where this situation applies the amount of Share Loss Relief on the disposal is not to exceed the deductions which would be allowed in calculating the amount of the loss if the qualifying shares were treated as acquired by a single transaction and the other shares were not so treated.

Example

Mr P holds 5,000 拢1 Ordinary shares in K Limited. On 24 January he subscribes for 1000 拢1 Ordinary shares in K Limited at 拢1.25 per share (assume these are qualifying shares). At other times on the same day he buys a further 500 shares in the market at 拢1.40 per share and another 2,000 from a friend for 拢1.45 each. He also sells 500 shares for 拢1.15 each. For TCGA 1992 purposes there is deemed to be one acquisition of 3,500 shares with (effectively) an average price of 拢1.39 each ([1000 x 拢1.25 + 500 x 拢1.4 + 2000 x 拢1.45]/[1000 + 500 + 2000] = 拢4,850/3,500). The 500 shares sold are identified with the shares acquired on the same day by virtue of section 105 TCGA 1992. Under TCGA rules his gain or allowable loss will be computed using an effective cost of 拢1.39 per share giving a loss of 拢118:

Proceeds of sale 拢575
500 x 拢1.15

Cost 拢693
拢4,850 multipled by (500 x 拢1.39) divided by (500 x 拢1.39 plus 3000 x 拢1.39)

Allowable loss 拢118

But in fact Mr P has lost 10p on each of the shares he subscribed for (拢1.25 - 拢1.15), a total of only 拢50: should the Share Loss Relief available be 拢118 or 拢50?

ITA07/S147(4) applies, so for Share Loss Relief purposes the 1,000 qualifying shares acquired on 24 January are not pooled with any other shares acquired on that date. The 500 shares disposed of are still identified with shares acquired on the same day, and as they are known to be qualifying shares they must be identified with 500 of the shares subscribed for on that day. The allowable deduction in respect of those shares is 500 x 拢1.25 = 拢625. Mr P鈥檚 Share Loss Relief may not exceed 拢625 so relief of 拢118 (equal to the allowable loss computed using the TCGA rules) is available.

Notice that the available relief is not restricted to the actual loss on the qualifying shares: the aim of ITA07/S147 is to prevent Share Loss Relief exceeding the total amount the claimant has given for the shares.