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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Indexation: from 6/4/88 adjustments to expenditure

TCGA92/S53 (3)

TCGA92/S53 (3) provides that in determining the amount of RAE, you take account of any provision in the Capital Gains legislation which, for the purpose of computing the gain, increases, excludes or reduces the whole or any part of the expenditure or provides for it to be written down.

Adjustments to Expenditure

  1. Examples of increases include items which have been specifically included within TCGA92/S38 (1)(a) or (b) such as those amounts charged as employment income which are listed in TCGA92/S120, see CG56300+.
  2. Exclusions include expenditure deductible in computing income or profits (TCGA92/S39, see CG14305).
  3. Reductions include expenditure relating to part-disposals, see CG17352, and in computing losses, but not gains, expenditure in respect of which capital allowances have been given, see CG17430.
  4. Expenditure which is written down includes the costs of leases and other wasting assets, see CG17380.

Where adjustments relate to specific items of expenditure, the adjustment should be made to that item. Otherwise the adjustment should be made pro rata to the total of the items of expenditure affected. Adjustments in respect of previous small part-disposals are subject to a special rule, see CG17360.

Expenditure not qualifying as RAE

The expenditure on the asset to be deducted in arriving at the gain or loss may be augmented by:-

  1. foreign tax chargeable on the disposal of an asset (see INTM169090);
  2. higher rate tax, etc on the apportionment of a close company’s income (TCGA92/S124, see CG57101);
  3. tax paid in respect of gains of non-resident companies (TCGA92/S13 (7), see CG57281);
  4. an amount of Inheritance Tax payable in respect of a gift (TCGA92/S67 (2), TCGA92/S165 (4) and TCGA92/S260 (7), see CG67050+).

These items are allowable deductions in arriving at the gain or loss, but they are not allowable sums under TCGA92/S38 (1)(a) or (b). Accordingly they do not attract the indexation allowance due on items of relevant allowable expenditure.

TCGA92/S253

Loans to traders

TCGA92/S253, see CG65910, provides that in certain cases involving loans to traders a loss resulting from the loan is an allowable loss for Capital Gains purposes. In this case the loss is computed directly under the legislation and there is no expenditure within TCGA92/S38. Accordingly the loss is not adjusted for indexation.

Assets not purchased or no allowable expenditure

Where the disposal is of an asset which has no allowable expenditure under CG15161, for instance, copyright or goodwill, it follows that there will be no RAE and therefore no indexation allowance, except in respect of expenditure wholly and exclusively expended in providing the asset, or where indexation is based on the 31 March 1982 value of the asset. See CG17405. Where a gain arises in respect of a disposal by a partner when he leaves a partnership or there is a change in his profit sharing ratio in the partnership, see CG27500+.