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HMRC internal manual

Capital Gains Manual

Indexation: from 6/4/88: time-apportionment

In Smith v Schofield (65TC669), the question at issue was whether time apportionment, see CG15570, was to be applied before or after indexation. The House of Lords confirmed the practice which HMRC has always followed, namely that the order of the computation is this: 

  • Compute the unindexed gain, see CG17232,
  • Calculate indexation and deduct it from the unindexed gain,
  • Apply time-apportionment to the indexed gain.

See example in CG17480.

It should be noted that it is still necessary to apply time- apportionment when operating the `kink test’ for the purposes of rebasing, if the asset in question was held at 6 April 1965. See Example 2 in CG16741.