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||Indexation||10,000 x 0.180||1,800|
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:
|LESS||Cost (as reduced)||11,800|
|LESS||Indexation||11,800 x 0.112||1,322|
The same principles apply to cases where the asset was a replacement asset used in a business, and roll-over relief was claimed.