Revenue Note for Guidance

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Revenue Note for Guidance

581 Disposals of shares or securities within 4 weeks of acquisition

Summary

This section is an anti-avoidance measure which is designed to limit the manipulation of capital losses by disposals and reacquisitions within a short time. It applies to shares and securities of the same class which are acquired and disposed of by the same person in the same capacity within 4 weeks. Under section 580 an asset purchased first is treated as the first asset sold, the first in first out (FIFO) rule, but under section 581, where there is a sale of shares or securities of the same class as shares or securities acquired within the previous 4 weeks, the FIFO rule is set aside and the shares or securities treated as sold are those acquired within the 4 week period and not those acquired earlier. Section 581 also prevents the manipulation of losses by the device of selling shares on securities with the intention of realising a loss for set-off against gains on other disposals and thereafter reacquiring the shares or securities within 4 weeks of their disposal.

Details

(1) In the case of a disposal by a person of shares of the same class as shares which the person acquired in the 4 weeks preceding the disposal, the normal first in first out rule does not apply. Instead, the shares acquired in the 4 week period are treated as the shares actually disposed of.

(2) Where the number of shares disposed of exceeds the number of shares acquired within the 4 week period, the excess comes within the normal first in first out rule.

(3) If shares are disposed of and shares of the same class are reacquired within 4 weeks after the disposal, any loss arising on the disposal is only allowable against any gain that may accrue on the disposal of the shares reacquired in the 4 week period. In a case where the number of shares so reacquired is less than the number of shares disposed of, a proportion of the loss is available for set-off in the normal manner. This proportion is the same proportion of the loss on the disposal as the number of shares not reacquired bears to the number of shares disposed of.

Example

A bought 1000 shares on 1 January, 2002 for €5,000. On 1 October 2009 the shares were valued at €4,000. He sold the shares for that price but on 8 October 2009 purchased 1000 shares in the same company for €4,200.

Computation —

Sale proceeds

€4,000

Cost €5,000 × 1.171

€5,855

Loss

€1,855

Reduce to actual loss

€1,000

The loss of €1,000 may only be used against a gain arising on a disposal of the shares acquired on 8 October, 2009.

If A had purchased only 500 shares on 8 October, 2009, half of the loss, that is, €500 would be available for set-off as normal; the other €500 would be available only for set-off-against a gain arising on the disposal of the 500 shares acquired on 8 October, 2009.

(4) In the case of a married couple/civil partners living together, subsections (1) and (2) apply where shares are acquired by one spouse/civil partner and shares of the same class are disposed of within 4 weeks by the other spouse/civil partner. Similarly, the rules of subsection (3) apply also where a loss on a disposal accrues to one spouse/civil partner and the acquisition after the disposal is made by the other spouse/civil partner. These provisions are necessary to prevent the circumvention of those subsections through disposals and acquisitions between spouses/civil partners.

(5) The section applies to securities in the same way it applies to shares.

Relevant Date: Finance Act 2019