CG17310 - 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:
| - | FIRST | SECOND | THIRD |
|---|---|---|---|
| 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.