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HMRC internal manual

Capital Gains Manual

Indexation: from 6/4/88: capital allowances: part-disposals


There are special rules for computing gains or losses in cases where there is a part-disposal of an asset. See CG12730+. In these cases the use of the A/A+B formula may produce a gain before indexation but an indexed loss. This is because the full amount of the original expenditure is taken into account in the capital allowances computation, but only part of it is used in the CG computation. See example in CG17513.

Indexed losses cannot become indexed gains

The basic principle of TCGA92/S41 is that expenditure on which capital allowances have been or may be given is not automatically excluded from the computation of chargeable gains or allowable losses. However if there is a loss after indexation, TCGA92/S41 has the effect of restricting that loss. But it cannot convert the indexed LOSS into an indexed GAIN; at most, it can only restrict the indexed loss to nil. See example in CG17514, which also refers to the meaning of allowances that `may be given’.

Capital allowances: assets held at 31/03/82

One particular area of complication is with assets held at 31 March 1982. This is particularly so in the case of plant and machinery where in the normal run of events the asset will have reduced in value over the years. It should be noted that in such a case indexation is based on the original cost, whereas rebasing means the acquisition cost is the 31 March 1982 value.

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For the purposes of TCGAS41, TCGA92/SCH3/PARA3 provides that where rebasing applies, the capital allowances shall be deemed, for the purposes of the rebasing computation, to have been given in respect of the expenditure deemed to have been incurred on 31 March 1982. This does not affect the amount of the capital allowances taken into account, but gets round the problem described in CG17450 for indexation on disposals during the period from April 1985 to March 1988. See examples in CG17515 and CG17516.