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HMRC internal manual

Capital Gains Manual

Indexation: example: asset held at 31 March 1982

E Ltd purchased a ship in 1980 for £2,000,000.

The market value on 31 March 1982 was £1,600,000.

It was sold in March 1993 for £800,000.

The net capital allowances were £1,200,000.

Because the loss by reference to original cost is clearly larger than the loss under the rebasing rules, the `kink test’ does not substitute the actual loss for the loss based on the 31.3.82 value. See CG16732. Because the asset is plant and machinery, any election made under TCGA92/S35 (5) is disregarded, (TCGA92/SCH3/PARA7 (2)(a)).

  Disposal proceeds   800,000
LESS Market value 31.3.82 1,600,000  
  Deduct capital allowances 1,200,00 400,000
  Unindexed gain   400,000
LESS Indexation    
  Cost 2,000,000  
  Capital allowances 1,200,000 602,400
    0.753 x 800,000  
  INDEXED LOSS   (202,400)