Inland Revenue 21
                                                  17 March 1998
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     CAPITAL GAINS TAX: COUNTERING BED AND BREAKFASTING OF 
                            SHARES 
                                
As part of the move towards a fairer tax system, the
Chancellor's Budget  proposals include action against the
practice known as "bed and  breakfasting".

Bed and breakfasting involves selling shares and buying them
back shortly  afterwards in order to reduce capital gains tax
bills.  From today, these  contrived sales will no longer have
the desired tax consequences.  For  capital gains tax
purposes, any shares sold and repurchased within a 30-day 
period will be matched, so that the gain or loss which would
otherwise have  arisen by reference to shares already held
will not be realised.   

The new rules will have effect for disposals of shares by
individuals or  trustees on or after today.

DETAILS

1.   Under present capital gains tax rules, it is possible to
realise a gain or  loss for tax purposes while effectively
continuing to hold the shares after the  transaction has been
completed. This is achieved through an arrangement  commonly
known as "bed and breakfasting".  Typically shares are sold at
the  close of business one day and then bought back at the
opening of business  on the next day.  In almost all
situations this is accomplished at little real risk  to the
investor.  

2.   Where the arrangement is used to produce a gain, this can
be offset  by the annual exempt amount so that no capital
gains tax is payable.  The  shares which are reacquired will
have a higher acquisition cost for tax  purposes which can
significantly reduce the tax charge on a subsequent sale.  
Where the practice is used to generate a loss, this can offset
other  chargeable gains.  

3.   These artificial arrangements will be tackled by changing
the share  identification rules for capital gains tax
purposes. The new rule will apply to  taxpayers who dispose of
shares and then acquire shares of the same class  in the same
company within 30 days of the disposal.  

4.   The new identification rule will ensure that, for the
purpose of  computing any chargeable gain or loss on the
disposal, the shares disposed  of are identified with
subsequent acquisitions within the 30-day period, in  priority
to any acquisition of such shares by the taxpayer before the
date of  the disposal.  Where both the disposal and subsequent
acquisition of shares  take place before 6 April 1998, the new
identification rule will take priority  over the current rule
which "pools" the acquisition of shares.  (This pooling  rule
will cease to apply more generally for all acquisitions on or
after 6 April  1998 (see press release Inland Revenue 16)).  

5.   The new identification rule will apply to disposals of
shares, securities  or other fungible assets by individuals,
trustees and others within the charge  to capital gains tax on
or after today.  It will not affect companies which pay 
corporation tax on their capital gains.  Their share disposals
are already  subject to special identification rules.  

NOTES FOR EDITORS

1.   Share identification rules are needed where taxpayers buy
and sell  shares or securities of the same class in the same
company.  Without these  rules it would not be possible to
establish how purchases are to be matched  with sales for the
purpose of computing gains for capital gains tax purposes.  
The rules generally work by identifying disposals with
previous acquisitions  except for sales and purchases which
take place on the same day. 

2.   As indicated in press release  Inland Revenue 16, the
introduction of  taper relief from 6 April 1998 requires the
introduction of new share  identification rules from that
date.  These new rules will incorporate the rule  which
identifies disposals of shares with acquisitions made within
the  following 30 days.  

3.   As the new 30-day rule is to operate for disposals of
shares on or after  today it will also take priority over the
current identification rules where there  is a subsequent
acquisition of shares of the same class in the same company 
within 30 days of the disposal.

4.   The yield from this measure is included in the figures in
press release  Inland Revenue 16 which summarises the main
structural changes for capital  gains tax. 

INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327