Capital Gains and other taxes manual

Appendix 22: CGT - indexation allowance

The Valuation Office Agency's (VOA) technical manual used to assess Capital Gains and other taxes.

1. Disposals between 6.4.82 and 5.4.85 (1.4.82 and 31.3.85 for companies)

The allowance under ss.86 and 87 FA 1982 was calculated by applying an indexation factor to the actual acquisition cost and any other items of allowable expenditure. The factor was calculated by using the formula:-

Expenditure RD - RI

RI

Where RD = The Retail Price Index (RPI) for the month in which the disposal occurs and

RI = The RPI for either March 1982 or, if later, the 12th month after incurring the expenditure.

The indexation allowance could not be used to increase or create an allowable loss.

2. Disposals after 5.4.85 and before 6.4.88 (31.3.85 and 1.4.88 for companies)

The indexation allowance was modified so that:

  1. If it was to the taxpayers advantage and the asset was acquired on or before 31 March 1982 the taxpayer could claim to have the indexation allowance based on the market value as at 31.3.82 instead of the cost.

  2. The definition of RI was amended to the RPI for the month of acquisition (not 12 months later).

  3. The indexation allowance could now increase losses or turn a chargeable gain into an allowable loss.

3. Disposals after 5 April 1988 (31.3.88 for companies)

The re-basing provisions introduced by s.96 FA 1988 did not effect the indexation allowance. The indexation allowance can still be claimed based on the cost of acquisition or, if acquired before 31 March 1982 the market value as at that date and on other items of allowable and expenditure incurred after 31 March 1982.

The relevant provisions are now contained in ss.53-57 TCGA 1992. However, the FA 1994 amended s.53 TCGA 1992 so that for disposals after 29 November 1993 the indexation allowance cannot be used to create a loss or increase the amount of a loss.