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Matching and LIFO Rule

Buy 1000 share A @ 100p	Total £1000
Buy another 1000 share A @ 120p	Total £1,200
Sell later 1000 share A @ 150p	Total £1,500

You cannot calculate your profit on this sale until you know the cost of the shares that you are selling. If you could choose to sell the first purchase, then your profit is £500. If you choose to sell the second, your profit is £300.

Before April 1998 the two purchases would have been pooled together to give a total cost of £2,200 for 2000 shares, giving the cost of 1000 shares at £1,100. So the sale would generate a profit of £400. For shares bought after April 1998 the system has changed from pooling to a last-in-first-out system (LIFO). This means that the sale is matched against the most recent buy. In the example above the sale would be matched against the purchase at 120p, giving a gain of £300. If you were to sell 1500 shares, then the additional 500 shares would need to be matched against the original purchase.

The rules of matching are as follows:

	Sales are matched first against purchases on the same date using pooling
	Second, sales are matched forwards against purchases made within the following 30 days (30 day rule).
	Next, sales are matched on a LIFO basis against purchases since April 1998.
	Finally, remaining sales are matched against indexed holding on 05/04/98.

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