HMRC Section 104 for UK clubs. IRC §704(c) Traditional Method for US partnerships. Automated K-1 filing. All the complexity handled — none of it passed to you.
Every country treats investment gains differently. HWSW supports all major cost-basis methods so clubs in the UK, US, or anywhere else can calculate gains correctly.
United Kingdom
HMRC rules
HMRC Section 104
The mandatory UK method. Shares are pooled and averaged across all prior acquisitions. Three matching tiers applied in order:
Full HMRC compliance built-in — including Capital Equalisation Adjustments (CEA) for clubs
United States
IRS / IRC §704(c) rules
Reverse 704(c) Allocation Engine
Traditional MethodPurpose-built for investment club partnerships. Every capital event — contribution, withdrawal, purchase, or sale — closes the current valuation window and locks each member's growth share, applying the IRC §704(c) Traditional Method to prevent new members from bearing tax on gains they didn't earn.
Lot-matching methods
FIFO
IRS defaultIRS default (§1.1012-1(c)). Oldest shares sold first.
Specific ID
Tax-optimisedPre-trade lot selection — enables HIFO strategies for tax optimisation.
IRS §704(c) Traditional Method — §704(b) capital accounts, §705 outside basis, §734(b)/§754 step-up
Global / Other
International methods
First In, First Out (FIFO)
CA · AU · DE · FRThe international default — mandated or preferred in most European, Asian and Commonwealth jurisdictions.
Last In, First Out (LIFO)
Select jurisdictionsNewest shares sold first. Useful where recent purchases have a higher cost basis.
Average Cost
NL · CA · global ETFsWeighted average cost across all purchases. Common in the Netherlands, Canada, and for ETFs globally.
The cost-basis method is set per-fund — so a multi-fund club can use different methods for each fund.
Method comparison
| Method | UK 🇬🇧 | US 🇺🇸 | Global 🌍 | Best for |
|---|---|---|---|---|
| HMRC Section 104 | ✓ Required | — | — | UK clubs — legally mandated |
| IRC §704(c) Engine | — | ✓ Built-in | — | US partnership clubs — Traditional Method |
| FIFO | — | ✓ Default | ✓ Common | Simplicity & international default |
| Average Cost | — | Mutual funds | ✓ | ETFs, mutual funds (not individual equities) |
| Specific ID / HIFO | — | ✓ | Varies | Tax optimisation & loss harvesting |
| LIFO | — | — | Varies | Jurisdictions where recent cost > old |
When a new member joins an investment club mid-year, they shouldn't pay Capital Gains Tax on gains that were already sitting in the fund before they arrived. Capital Equalisation Adjustments (CEA) protect them — and HWSW calculates every adjustment automatically.
Example — Capital Equalisation Statement
£492 saved in unnecessary CGT
When a new member joins a US investment club and the fund already holds appreciated assets, IRS rules require the pre-existing built-in gains to stay with the original members — not be diluted to the newcomer. HWSW enforces this automatically on every single capital event, using the Traditional Method under Treas. Reg. §1.704-3(b).
Every contribution, withdrawal, purchase, or sale closes the current valuation window, locks each member's growth share, and recalculates cost slices so the mathematical invariant Σ(member cost slices) = original purchase price holds at all times — automatically, for any number of members making contributions of any size at any frequency.
This ledger is engineered as a specialized Subchapter K Cash-In/Cash-Out engine for unleveraged public equity portfolios.
How a contribution event is processed
Member contributes $5,000
Ownership percentages shift
Current window closes
Growth shares locked: appreciation × old %
704(c) matrix runs per member
New basis = (FMV × new%) − growth share
Deltas written to sub-ledger
Σ(delta) = $0 — zero basis created or destroyed
New window opens
New ownership % sealed for next event
By engineering a true IRC §704(c) Valuation Window engine, HWSW operates at a significantly more advanced level of mathematical accounting than legacy investment club software — eliminating the book-to-tax disparities that plague older solutions.
Every single capital event — contribution, withdrawal, purchase, or sale — closes an isolated valuation window immediately, locking each member's historical growth layer the moment it occurs. Not annually. Not on exit. Continuously.
By continuously rebalancing MemberLotCostSlice.costBase, HWSW ensures that when a security is sold, the resulting capital gain is legally distributed only to the exact partners who were economically present to earn that appreciation.
The mathematical invariant Σ(member cost slices) = original purchase price holds at all times. No rounding drift, no phantom gains, no misallocated basis. A bulletproof accounting foundation built for modern investment syndicates.
HWSW automates the entire Schedule K-1 filing workflow. Track real-time box estimates, generate year-end PDFs, and submit directly to the IRS.
Members see live K-1 estimates updated daily. Item K, Boxes 9a/9c, qualified dividends, basis tracking — no surprises.
Form 1065 + per-member Schedule K-1 PDFs. Ready for tax returns or CPA handoff. No manual assembly.
Export MeF-validated XML for direct IRS submission. §704(c) allocations embedded. Audit trail locked.
✓ Compliance
Every box correct per IRS. Full audit trail locked.
✓ Speed
Ready days after Dec 31. Members file faster.
✓ Clarity
Preview all year. No January surprises.
Start free. No credit card required. UK and US clubs welcome.
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