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HMRC internal manual

Capital Gains Manual

Indexation: example: capital allowances exceed value on 31/3/82

F Ltd purchased a ship in 1975 for £2,000,000.

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

It was sold in March 1993 for £500,000.

The net capital allowances were £1,500.000.

In this case the capital allowances exceed the market value on 31 March 1982. However the market value can only be reduced or eliminated. It cannot become negative expenditure.

  Disposal proceeds   500,000
LESS Market value 31.3.82 1,000,000  
  Deduct capital allowances (restricted) 1,000,000 NIL
  Unindexed gain   500,000
LESS Indexation    
  Cost 2,000,000  
  Capital allowances 1,500,000  
    0.753 x 500,000 376,500
  INDEXED GAIN   123,500

As TCGA92/S41 cannot give rise to a gain, but only eliminate a loss, the loss is nil, and there is no gain.