Dan has 50,000 shares in ABC UK equity Oeic (income shares). He purchased 30,000 shares in April 2009 at £2.00 a share. He purchased a further a 10,000 shares in May 2012 at £2.20 a share and finally 10,000 shares in January 2015 for £3.00 a share.
The average acquisition price for the holding is:30,000 x £2.00 = £60,000
10,000 x £2.20 = £22,000
10,000 x £3.00 = £30,000
Total = £112,000
Acquisition price per share £112,000/50,000 = £2.24
Step two – Determine the gain per share
Once you have the acquisition cost per share it is easy to calculate the gain for each individual share unit by deducting it from the quoted unit/share price on the date of the disposal.
Example (continued):
The current unit price for the ABC UK Equity OEIC is £4.74 a share. The gain per share if Dan sells part of his holding is £4.74 - £2.24 = £2.50 per share
Step 3 – Calculate the number of shares to be sold
Once you have the gain per share it is simply a case of dividing the available exemption by the gain per share to determine the number of shares to be sold.
Example (continued):
Dan hasn’t made any other disposals in the current tax year and has the full annual exemption available of £12,300. To make full use of his annual exemption this year he will need to sell:
£12,300/£2.50 = 4,920 share
4,920 shares at the current market price of £4.74 a share will mean he will surrender £23,320 of his portfolio with a gain £12,300.
Adjusting the acquisition cost
The acquisition cost may need to be adjusted when income distributions are reinvested.
Accumulation shares vs income shares
Investors in accumulation shares don't receive income distributions from their fund. The income is automatically reinvested within the fund, inflating the share price. But the reinvested amounts are also added to the pooled cost, reducing the gain when shares are sold.
Example (continued):
Let’s assume Dan had purchased ‘accumulation’ shares in ABC UK Equity Oeic instead of ‘income’ shares. Over the term of the investment, the total income reinvested equates to £8,000.
The gain calculated above needs to be adjusted. Dan paid £112,000 in total for 50,000 shares.
By adding the reinvested income of £8,000 to the acquisition cost this increases the average acquisition cost to £2.40 per share: (£112,000 + £8,000) / 50,000 = £2.40.
Therefore, based on the current market price of £4.74 a share, the gain per share is reduced to £2.34 (£4.74 - £2.40).
