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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Indexation: from 6/4/88: basic principles indexed gain or loss

TCGA92/S53 (1)

The first step is to calculate the gain or loss on the disposal in accordance with CG17232 to arrive at the unindexed gain or loss.

TCGA92/S53 (1) provides that for disposals before 30 November 1993, the indexation allowance is set against or, as the case may be, added to the unindexed gain or loss so as to give the gain or loss as follows:-

  1. if there is an unindexed gain, the indexation allowance is deducted from the gain and, if the allowance exceeds the unindexed gain, the excess constitutes a loss;
  2. if there is an unindexed loss, the indexation allowance is added to it so as to increase the loss; and
  3. if the unindexed gain or loss is nil, there is a loss equal to the indexation allowance. (This does not apply where any provision provides that on a particular occasion there is no gain and no loss. See CG17400 - CG17405 for these cases)
  4. You may then have to reduce the unindexed gain or loss for items such as those referred to in CG17232, to arrive at the amount of the chargeable gain or allowable loss.

The examples in CG17310 illustrates (a) and (b).

The examples in CG17311 illustrates (c) and (d).

TCGA92/S53 (1) was amended with effect from 30 November 1993 by Finance Act 1994. Thereafter the extent to which indexation allowance can create or increase a loss is subject to restrictions. See CG17700+.