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Sell shares in the UK and HMRC does not care what you paid for the exact shares you sold. It cares about your Section 104 holding — a single pool that blends every share of the same class into one running average cost. Get that number wrong and you can overstate your gain by hundreds of pounds, or understate it and invite a correction later.
This guide shows exactly how the Section 104 holding works: how the pool is built, how the same-day and 30-day rules jump the queue ahead of it, and how to calculate the gain the way HMRC actually expects. If you want the wider picture first, our explainer on how capital gains tax on shares works sets the scene — and if you would rather build the underlying investing skill properly, our structured courses on investing in the US, UK and European markets teach the record-keeping habits that make tax time painless.
- A Section 104 holding pools all shares of the same class in the same company into one asset at a single average cost.
- When you sell, HMRC matches the disposal in a fixed order: same-day buys, then buys in the next 30 days, then the pool.
- The pool cost is a weighted average — not your first purchase price and not your last.
- With the annual CGT allowance cut to just £3,000 for 2026/27, an accurate pool decides whether you owe tax at all.
- The pool applies only to taxable accounts — shares inside an ISA or SIPP are outside CGT entirely.
What is a Section 104 holding?
A Section 104 holding is the single pool HMRC uses to value all the shares you own of the same class in the same company. Every share in the pool is treated as identical and acquired at the same cost: the pool's total spend divided by the number of shares. When you sell, your allowable cost is that average, not the price of any one purchase.
The rule is not new. Since 6 April 2008, all shares of the same class in the same company that you acquired from 1 April 1982 onwards are automatically pooled this way, and the pool is treated as one asset that grows and shrinks as you buy and sell. That is the arrangement named after section 104 of the Taxation of Chargeable Gains Act. (Source: HMRC Capital Gains Manual CG51575, 2026.)
The point of the pool is simplicity and fairness. If you drip-feed money into the same company across years — a very common pattern for index and dividend investors — the taxman does not ask you to remember which specific shares left your account. It just tracks one blended cost per share.
How share pooling calculates your average cost
The pooled cost is a weighted average. Each time you buy, you add the cash spent to the pool's total cost and the shares bought to the pool's share count. Each time you sell, you remove shares in proportion, at the current average, and the average per share stays the same for what remains.
Here is the calculation in full. Say you build a position in one company over two years:
- January 2022: buy 100 shares at £10 = £1,000
- January 2024: buy 100 shares at £15 = £1,500
- Your pool is now 200 shares for £2,500 — an average cost of £12.50 a share.
Now you sell 100 shares in June 2026 for £20 each, receiving £2,000. Your allowable cost is 100 × £12.50 = £1,250, so your gain is £750. The pool keeps its remaining 100 shares at £1,250, still £12.50 each. Note what would happen if you used the wrong figure:
| Cost basis you use | Allowable cost | Reported gain on £2,000 sale |
|---|---|---|
| First-purchase price (£10) | £1,000 | £1,000 — overstated by £250 |
| Last-purchase price (£15) | £1,500 | £500 — understated by £250 |
| Section 104 pooled (£12.50) | £1,250 | £750 — correct |
Illustrative worked example using the pooling method in HMRC Capital Gains Manual CG51575, 2026.
What this means for you: only the pooled figure is defensible. The other two are the errors people make when they eyeball a broker statement instead of maintaining a running pool. The wider your buying window and the more top-ups you make, the further those shortcuts drift from the truth.
The share-matching order: same day, 30 days, then the pool
The pool is not always the first place HMRC looks. When you sell, the disposal is matched against your acquisitions in a strict priority order, and only what is left over touches the Section 104 pool. Get the order right and everything else follows.
Source: HMRC Capital Gains Manual CG51560 and CG13370; Financial Software Ltd, 2026.
For most ordinary investors who buy and hold, steps 1 and 2 never fire and the whole disposal simply matches the pool. The order only matters when you trade in and out of the same holding inside a short window — which is exactly the behaviour the next rule was written to police.
What is the same-day and 30-day rule?
The same-day and 30-day rule forces a sale to be matched against any purchase of the same shares made on the day of sale or within the following 30 days, before the pool is used. Its job is to stop investors from selling purely to book a gain or loss on paper and then buying straight back in at almost the same price.
This closes an old loophole called bed-and-breakfasting. Before it, an investor could sell shares near the tax-year end to crystallise a loss, then repurchase the next morning — keeping the position but manufacturing a tax result. HMRC ended the tactic from 17 March 1998 by linking the repurchase to the sale. (Source: HMRC Capital Gains Manual CG13370; LexisNexis UK, 2026.)
See how it changes the maths. Suppose you sell 100 shares on 10 June 2026 for £20 each, then buy 100 of the same shares back on 25 June at £21:
- The 25 June repurchase is inside the 30-day window, so the sale matches it, not the pool.
- Gain on the matched parcel = £2,000 proceeds − £2,100 cost = a £100 loss.
- Your Section 104 pool is left completely untouched.
If you had assumed the sale would match your cheaper pooled cost and produce a gain, the rule has quietly overridden you. This is why the 30-day window matters even to long-term investors who occasionally rebalance. If your aim is genuinely to shelter shares rather than trade them, the cleaner route is the Bed and ISA manoeuvre, which moves the holding into a tax-free wrapper instead of fighting the matching rules.
Why the shrinking CGT allowance makes your pool matter more
A decade ago, a small error in your pooled cost rarely changed your tax bill, because the annual exempt amount absorbed most modest gains. That cushion has been gutted. The tax-free allowance has fallen from £12,300 to just £3,000 in three years:
UK CGT annual exempt amount, 2022/23 to 2026/27
Source: Deloitte Taxscape UK Tax Tables 2026/27; HMRC Autumn Statement 2022 measure.
That is a 76% cut in the tax-free cushion, and it now lands on more of your gain than ever. Gains above the allowance are taxed at 18% within your remaining basic-rate band and 24% above it — up from 10% and 20% before 30 October 2024. (Source: Deloitte Taxscape 2026/27; HMRC.)
What this means for you: the margin for error has collapsed. A £250 mistake in your reported gain — exactly the size of the error in the table above — used to vanish inside the allowance. Now it can be the difference between a nil return and a real bill of £45 to £60 in tax on that slip alone. Understanding how capital gains tax on shares works alongside the pooling method is now basic financial hygiene, not an accountant's luxury.
Common Section 104 mistakes that cost investors money
The pool is simple in principle and easy to get wrong in practice. These are the errors that show up most often:
- Using a single purchase price. Reaching for your first or last buy price instead of the blended pool cost is the most common slip — and, as the table showed, it moves the gain in either direction.
- Forgetting the 30-day rule. Rebalancing out of and back into the same fund within a month silently reroutes your disposal away from the pool.
- Pooling across accounts wrongly. The pool is per person, per company, per share class — but shares held in a general investment account and the identical shares held in a tax wrapper are treated completely differently. Only shares held in a general investment account feed a Section 104 pool at all.
- Ignoring bonus and scrip shares. Scrip or bonus shares enter the pool at nil cost, raising the share count without adding to the total spend and lowering your average cost per share. (Source: HMRC Capital Gains Manual CG51575, 2026.)
- Not tracking in the base currency. If you buy a US-listed share in dollars, each purchase must be converted to sterling at the rate on its own date before it enters the pool — a single blended exchange rate will not do.
None of these are exotic. They are the everyday consequences of treating a broker's average-cost display as if it were HMRC's, when the two are calculated on different rules.
The fix is unglamorous but reliable: keep one running record per holding that updates the pooled cost and the share count on every buy, sell, dividend reinvestment and corporate action. Reconcile it against your broker's contract notes rather than its average-cost display, and store the sterling cost of each transaction as at the date it happened. A holding you have owned for a decade is almost impossible to reconstruct from memory in the year you finally sell it — the record has to grow alongside the position, not be assembled in a panic at self-assessment.
Frequently asked questions
This article is educational content on UK tax mechanics, not investment or tax advice. Capital gains tax rules change and your position depends on your own circumstances; confirm the current rates and reliefs before you file.
