Policy paper

Corporation Tax: removal of capital gains indexation allowance from 1 January 2018

Published 22 November 2017

Who is likely to be affected

Any company that disposes of a capital asset which gives rise to a chargeable gain, and any company that holds shares in a share pool.

General description of the measure

This measure means that when a company makes a capital gain on or after 1 January 2018, the indexation allowance that is applied in order to determine the amount of the chargeable gain will be calculated up to December 2017.

Without this measure, indexation allowance would be calculated up to the month in which the disposal of the asset occurs.

Policy objective

The measure aligns the treatment of capital gains by companies with that for individuals and non-incorporated businesses for whom indexation allowance was abolished in 2008. It will also align the treatment of capital disposals with disposals of similar assets as part of a company’s trading activities.

In addition it will simplify tax computations and remove a source of potential errors.

Background to the measure

The measure was announced at Autumn Budget 2017.

Detailed proposal

Operative date

This measure will have effect for disposals on and after 1 January 2018.

Current law

Current law is included in Chapter IV of Part II for the majority of assets, and there are special rules for the calculation of indexation allowance on disposals of shares and securities in Chapter I of Part IV TCGA 1992.

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18.

This measure changes the calculation of indexation allowance so that for disposals of assets on or after 1 January 2018, indexation allowance will be calculated using the Retail Price Index or factor for December 2017, irrespective of the date of disposal of the asset.

Summary of impacts

Exchequer impact (£m)

2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022 2022 to 2023
+30 +165 +265 +345 +440 +525

These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing includes a behavioural effect to account for the affected population finding ways to mitigate the impact of the changes.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects companies.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure does not have an equalities impact as it only affects companies.

Impact on business including civil society organisations

This measure will impact on companies that dispose of a capital asset which gives rise to a chargeable gain, or which hold shares in a share pool. The measure is expected to have a negligible impact on business administrative burdens. One-off costs include familiarisation with the new rules. Negligible on-going savings could result from the simpler tax computations and removal of a source of potential errors.

Operational impact (£m) HM Revenue and Customs (HMRC) or other

There will be costs for HMRC to implement this change and they are anticipated to be approximately £380,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Corey Herbertson on Telephone: 03000 542955 or email: corey.herbertson@hmrc.gsi.gov.uk