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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Rebasing to 31/3/82: no gain/loss disposals: examples

Example 1

A Ltd acquired an asset in 1979.

In 1983 A Ltd transferred it to B Ltd, a subsidiary of A Ltd, under ICTA70/S273 (now TCGA92/S171).

In 1985, B Ltd’s business was transferred to C Ltd in the course of a scheme of reconstruction, and the asset passed to C Ltd under ICTA70/S267 (now TCGA92/S139).

C Ltd sold the asset in July 2012.

As both ICTA70/S267 and ICTA70/S273 are specified in TCGA92/SCH3/PARA1, and as there were no other disposals of the asset between 31 March 1982 and July 2012, C Ltd is treated as having held the asset on 31 March 1982 for the purposes of rebasing (and indexation if beneficial).

Example 2

    £
     
1 January 1980 acquisition by A Ltd 10,000
31 March 1982 market value 12,000
1 January 1985 enhancement expenditure 3,000
31 December 1985 no gain/no loss disposal from A Ltd to B Ltd  
31 March 2013 third party disposal by B Ltd 50,000

REBASED GAIN

The enhancement expenditure incurred by A as the actual owner of the asset is treated as incurred by B where, for indexation or rebasing purposes, B is deemed to have held the asset on 31 March 1982. The rebasing calculation by reference to 31 March 1982 market value is accordingly:

        £
         
  Disposal proceeds     50,000
less 31 March 1982 market value   12,000  
  Enhancement expenditure   3,000 15,000
    Unindexed gain   35,000
         
less Indexation March 1982 to March 2013 12,000 x 2.131 25,572  
  Indexation January 1985 to March 2013 3,000 x 1.727 5,181 30,753
    Gain   4,247

GAIN ON OLD RULES

Where a ‘kink test’ is required in the case of a disposal by a company then, for the purposes of the comparison by reference to historic cost, B takes over A’s actual cost (£10,000 plus enhancement expenditure £3,000). The indexation included in B’s allowable cost on the no gain/no loss disposal by Section 56(2) TCGA 1992 is stripped out by Section 55(6)(b), and for indexation purposes B is treated as having held the asset on 31 March 1982. The calculation by reference to historic cost is accordingly:

        £
         
  Disposal proceeds     50,000
less Cost 10,000 + 3,000   13,000
  Unindexed gain     37,000
         
less Indexation March 1982 to March 2013 12,000 x 2.131 25,572  
  Indexation January 1985 to March 2013 3,000 x 1.727 5,181 30,753
    Gain   6,247

Note: Indexation is based on the higher of relevant allowable expenditure before 31 March 1982 and the 31 March 1982 value, see CG16732.

The chargeable gain is £4,247 (the smaller gain).