CG17570 - Introduction and computation: indexation: disposals April 1985 to March 1988
1985 changes
FA85/S68
This section describes two of the amendments brought in by FA85/S68 and FA85/SCH19. The remainder are covered in the general instructions. The major changes introduced were as follows:-
i) The extension of the indexation allowance to losses so that the indexation allowance may create or augment an allowable loss.
ii) The removal of the twelve month waiting period for the indexation allowance so that indexation is calculated with immediate effect from the date expenditure on the asset was incurred.
iii) The introduction of a provision enabling a taxpayer to claim, in respect of an asset held on 31 March 1982, that indexation be calculated by reference to the market value of the asset on that date.
iv) Various changes to the pooling rules for shares, see CG51601.
FA85/S68 (1)
Application date
Generally these provisions apply to disposals on or after `the 1985 date'. In these instructions, `the 1985 date' means 1 April 1985 in the case of holdings or disposals by companies and 6 April 1985 in any other case.
Claim for 31/3/82 value: indexation
FA85/S68 (4)
Where an asset which was held on 31 March 1982 is disposed of on or after the 1985 date, a claim may be made within two years of the end of the year of assessment in which the disposal occurred for the indexation allowance to be computed by reference to the market value of the asset on 31 March 1982 instead of by reference to the relevant allowable expenditure incurred up to that date. The computation of the unindexed gain or loss in accordance with CG17232 is unaffected by this provision.
Indexation is therefore computed by reference to notional relevant allowable expenditure (`RAE'), but exactly as if the taxpayer had acquired the asset on that date. So, for instance, if the asset is a lease, the expenditure falls to be wasted for indexation purposes as if the lease had been acquired on that date. If the asset is a freehold property, it is valued by reference to its condition on that date, for example, by taking account of any lease in force then, even though the land was sold after the lease had been terminated. See Henderson v Karmel's Executors, 58TC201, a case on 6 April 1965 valuation.
Any relevant allowable expenditure incurred AFTER 31 March 1982 will qualify for indexation allowance in the normal way by reference to the date on which that expenditure was incurred.
FA85/S68 (5)
Election for 31/03/82 value: claims
A claim under FA85/S68(5) may be made informally, for example, by incorporation in a computation, provided that attention is drawn to it either in the computation itself or in a letter.
LATE CLAIMS SHOULD BE DEALT WITH IN ACCORDANCE WITH CG13700.
Assets with no cost
Where the disposal is of an asset held on 31 March 1982 which has no allowable expenditure under CG15161 (for example, copyright, goodwill or an interest in a partnership) a claim under FA85/S68 (5) may nevertheless be made for indexation allowance to be given by reference to the market value of the asset on that date. Market value is to be determined in each case in accordance with the normal principles set out in CG16200C.
No gain, no loss
FA85/S68 (7) & (8)
Provision was made for persons disposing of assets, other than on a no gain/no loss disposal, to make a claim under FA85/S68(5) even though they did not hold the assets on 31 March 1982 where they, as transferee, had acquired the assets from a transferor who was at the time of this transaction-
- his (or her) spouse, TCGA92/S58 applying, see CG22200+; or
- a company, TCGA92/S139 or TCGA92/S171 applying, see CG45300+ and CG45630;
- where the asset is land, a predecessor constituency association, TCGA92/S264 applying, see CG60260; or
- the Hops Marketing Board, FA82/S148 applying (now repealed 2004);
and either the transferor had held the asset on 31 March 1982, or had acquired it since then on a no gain/no loss transfer of the kind specified above, or in a succession of such transfers from a person who had so held it. In these circumstances the transferee may make a claim for the indexation allowance to be calculated by reference to the market value of the asset at 31 March 1982. However, since under the no gain/no loss provisions in TCGA92/S56 (2), see CG17402, the transferee is treated as having acquired the asset for a consideration which together with any indexation allowance produces neither a gain nor a loss, it is necessary, in arriving at the unindexed gain or loss, to deduct the indexation allowance already included in the consideration which is treated as given for the asset.