How is the profit calculated when disposing of a deeply discounted security under ITTOIA 2005 s 439?

Under section 439 of ITTOIA 2005, the profit on disposal of a deeply discounted security is calculated as the disposal proceeds minus the original acquisition cost. For example, if a security was purchased for £80 and sold for £100, the taxable profit would be £20. Incidental expenses are generally not deductible from this calculation.

Can incidental expenses such as broker fees be deducted when calculating profit on a deeply discounted security?

Generally, incidental expenses like broker fees or transaction costs cannot be deducted when calculating profit on a deeply discounted security. However, an exception exists for incidental expenses incurred before 27th March 2003 in connection with acquiring or disposing of the security — these may be deducted from the profit under section 439.

What happens to the profit calculation if a deeply discounted security is sold and later re-acquired?

If a person sells a deeply discounted security and later re-acquires the same security, only the most recent acquisition cost is used in the profit calculation on a subsequent disposal. Earlier purchase prices and any associated incidental expenses from prior acquisitions are disregarded entirely under section 439 of ITTOIA 2005.

Does section 455 of ITTOIA 2005 affect the profit calculation for listed deeply discounted securities?

Yes, separate rules in section 455 of ITTOIA 2005 apply to listed securities that have been held since 26th March 2003. These rules may modify how the profit or loss on disposal is calculated, potentially altering the treatment of incidental expenses and acquisition costs beyond the general rules in section 439.

Income Tax (Trading and Other Income) Act 2005 section 439

Calculating the profit from disposals

Section 439 sets out the rules for calculating a person's taxable profit when they dispose of a deeply discounted security.

Profit is calculated as the disposal proceeds minus the original acquisition cost of the security
Incidental expenses of buying or selling the security are generally not deductible from the profit
An exception applies for incidental expenses incurred before 27th March 2003, which may be deducted from the profit
Where a security is sold and later re-acquired, only the most recent acquisition cost and related expenses are used when calculating profit on a subsequent disposal

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member