Section 104: How to Work Out the Average Cost of Your Shares

Imagine putting all your shares in one company into a single pot, along with everything you paid for them. That pot is what HMRC calls a Section 104 holding, or a "pool". The name comes from the section of the tax law that sets it up.

Every share in the pot is treated as if it cost the same: the average cost. You don't have to track which exact shares you sold.

You have a separate pool for each company, and for each type of share in that company. Shares in an ISA or pension don't go in the pool, because they are free of Capital Gains Tax.

The cost of the shares you buy is more than just the share price. You add:

• the price you paid for the shares
• the dealing fee your broker charged for the purchase
• any stamp duty (Stamp Duty Reserve Tax) you paid when buying

Fees for selling don't go in the pool. They are taken off the money you get from the sale instead. Either way, fees reduce your gain, so it's worth including them.

Each time you buy, add the shares to the pool and add what they cost to the pool's total cost. Then divide the total cost by the number of shares to get the average.

When you sell some shares, you take a share of the pool's total cost that matches the share of the pool you sold.

Cost of shares sold = total pool cost × (shares sold ÷ shares in the pool)

Then take those shares and their cost out of the pool:

If you buy more later, add them to what's left in the pool in the same way. (If you buy within 30 days of a sale, a different rule applies. See the next section.)

The pool is the last of HMRC's three matching rules. Before using it, a sale is matched with:

1. Shares bought the same day as the sale.
2. Shares bought in the 30 days after the sale (the "bed and breakfast" rule).

Those shares use their own actual cost, not the average, and they never join the pool. So if you sell and buy back within 30 days, your gain is worked out using the price you bought back at. Our guide to the 30-day rule has worked examples.

• Share splits and bonus issues. You get more shares but pay nothing extra, so the number of shares goes up and the total cost stays the same. For example, a 2-for-1 split turns 90 shares costing £966 into 180 shares costing £966, an average of £5.37.
• Rights issues. If you pay for extra shares offered by the company, add the new shares and what you paid to the pool.
• Accumulation funds. In accumulation ("Acc") funds, income is reinvested for you rather than paid out. Where you pay income tax on that income, HMRC lets you add it to your cost, which lowers your gain. Your platform's annual tax statement usually shows these amounts.
• Takeovers and mergers. These have their own rules and can move your cost into shares of the new company.

Our calculator doesn't adjust for these automatically. HMRC's helpsheet HS285 covers company changes in more detail.

Many platforms show a "book cost" or "average price". It's a useful check, but it isn't always the figure HMRC uses. Platforms may leave out fees, may not apply the same-day and 30-day rules, and may treat reinvested income differently.

Keep your own record of every purchase and sale, with dates, prices and fees. You can paste those trades into our calculator, which builds the pool and applies the matching rules for you.