CG17207 - Indexation: history
FA82/S86, FA82/S87, FA82/S88, FA82/S89, FA82/SCH13
FA85
FA88 - REBASING
FA94
FA98 INDEXATION FROZEN
DEFERRED GAINS
EXAMPLES
FA08 - CGT SIMPLIFICATION - WITHDRAWAL OF INDEXATION
DEFERRED GAINS
FA82/S86, FA82/S87, FA82/S88, FA82/S89, FA82/SCH13
FA82/S86 - FA82/S89 and FA82/SCH13 introduced a deduction, known as the `indexation allowance’, to be made in computing gains. The allowance was given on the allowable expenditure. This would normally be the cost of the asset, or if appropriate, see CG15501, the value on 6 April 1965.
For assets acquired after March 1982, the chargeable gain becomes approximately the `real’ gain, that is, the gain after making an allowance for inflation. But relief was severely restricted, see CG17540, by three particular provisions:-
- For assets acquired before April 1982, only the inflationary element from March 1982, was taken into account for indexation, although indexation was based on the original cost.
- Indexation could not create or increase a loss.
- No relief was due for the first twelve months of ownership.
FA85
FA85/S68 and FA85/SCH19 amended and extended the original FA1982 provisions. The twelve month rule was repealed. Indexation could now increase or create losses, so that indexation was due in respect of all disposals. In addition, where the asset was held at 31 March 1982 the allowance could be computed by reference to the value at that time. As a result the legislation enabled the full inflationary element of the gains since March 1982 to be taken into account, see CG17570.
FA88 - REBASING
The next step was in FA88/S96 which broadly provided that where assets were held on 31 March 1982 the gain would normally be computed by reference to the value on that date. See CG16700+. This is known as `rebasing’.
FA94
FA94/S93 and FA94/SCH12 introduced restrictions on the extent to which indexation allowance can create or increase a loss. These rules operate in respect of disposals of assets on or after 30 November 1993 See CG17700+. However, there are special rules for dealing with indexation following no gain/no loss transfers of an asset (see CG12705) before 30 November 1993.
FA98 INDEXATION FROZEN
For disposals between 6 April 1998 and 5 April 2008 FA98/S122 froze indexation allowance, except for disposals made by companies within the charge to Corporation Tax. In practice this means that for disposals on or after 6 April 1998 the indexation factor runs to April 1998 for Capital Gains Tax purposes regardless of when the disposal is made in the period up to 5 April 2008.
Indexation allowance is not available in respect of assets acquired, or other relevant allowable expenditure incurred, after 31 March 1998, except for assets acquired by companies within the charge to Corporation Tax.
See CG51623 for an explanation of freezing indexation for share pools.
Indexation continued as before for companies within the charge to Corporation Tax.
DEFERRED GAINS
Freezing of indexation allowance does not change the treatment of any gain that is computed on a disposal or a deemed disposal before 6 April 1998 but postponed so that it is treated as accruing on or after 6 April 1998. Indexation allowance will be computed to the date of the disposal or deemed disposal and not to the date of accrual.
Where the date of the disposal or deemed disposal is on or after 6 April 1998 indexation allowance will be computed to April 1998, except in the case of companies within the charge to Corporation Tax where where indexation was not frozen until 1 January 2018.
The most common examples of postponed gains include
- reorganisations involving qualifying corporate bonds, see CG53709
- business asset roll-over relief where the replacement asset is a depreciating asset, see CG60370+.
EXAMPLES
The example at CG17318 illustrates the freezing of indexation allowance. The example at CG17319 illustrates the freezing of indexation allowance where a gain is postponed.
FA08 - CGT SIMPLIFICATION - WITHDRAWAL OF INDEXATION
FA08/S8 and FA08/SCH2 simplified CGT. This included a single rate of CGT applicable for disposals on or after 6 April 2008. As part of CGT Simplification, indexation is no longer available.
CGT Simplification does not apply to companies who pay corporation tax on their chargeable gains. FA08 introduced TCGA92/S52A, which provides that indexation only applies for the purposes of corporation tax.
DEFERRED GAINS
The withdrawal of indexation allowance with effect from 6 April 2008 does not change the treatment of any gain on an asset owned before April 1998 that is computed on a disposal or a deemed disposal before 6 April 2008 but postponed or deferred so that it is treated as accruing on or after that date. Indexation allowance will be computed to 5 April 1998 (or the date of the disposal or deemed disposal if before 5 April 1998) and not to the date of accrual.