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HMRC internal manual

Capital Gains Manual

Indexation: from 6/4/88 example: basic computation

On 1 May 1988 Mr A buys three paintings for £20,000 each.

On 1 June 1992 he sells them.

The first is sold for £100,000 giving an unindexed gain
The second is sold for £15,000 giving an unindexed loss
The third is sold for £24,000 giving an unindexed gain

The tables, see CG17290, show that for a disposal in June 1992 of an asset acquired in May 1988, the indexation factor is 0.312, giving indexation of £6,240.

The computations are as follows: 

Disposal Proceeds 100,000 15,000 24,000
Cost 20,000 20,000 20,000
Unindexed Gain 80,000 Loss (5,000) Gain 4,000
less Indexation 6,240 6,240 6,240
Indexed Gain 73,760 Loss (11,240) Loss (2,240)

This shows that before 30 November 1993, indexation could

  • reduce a gain as with the first picture,
  • increase a loss as with the second, and
  • turn an unindexed gain into an indexed loss as with the third.

The effect of the changes applying with effect from 30 November 1993, see CG17700+, assuming a disposal on or after that date, would be that

  • the loss on the second would equal the unindexed loss, and
  • the unindexed gain on the third would be eliminated by indexation, but there would be no indexed loss.