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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Indexation: example: indexation and gifts hold-over relief

5 November 1982 A acquires an oil painting at arm’s length for cash £10,000.

5 July 1986 he gives the picture to B, his son. The market value of the picture at that time is agreed to be £15,000.

5 September 1988 B sells the picture at arm’s length for £20,000.

A’s computation is:-

  Deemed proceeds (market value)   15,000
LESS Cost   10,000
  Unindexed gain   5,000
LESS Indexation 10,000 x 0.180 1,800
  INDEXED GAIN   3,200

B claims gifts hold-over’ relief under the rules which were in force in 1986, see CG66730+, on his gain of £3,200.

B’s allowable expenditure is (£15,000 - £3,200) = £11,800 for all purposes. and the computation is therefore:

  Disposal proceeds   20,000
LESS Cost (as reduced)   11,800
  Unindexed gain   8,200
LESS Indexation 11,800 x 0.112 1,322
  INDEXED GAIN   6,878

The same principles apply to cases where the asset was a replacement asset used in a business, and roll-over relief was claimed.