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HMRC internal manual

Capital Gains Manual

Indexation: disposals 30/11/93+: Finance Act 1994


The Finance Act 1994 introduced restrictions on the extent to which indexation allowance can create or increase a loss. These restrictions operate for the purposes of CGT in respect of disposals of assets made on or after 30 November 1993 but before 5 April 2008 subject to the ‘freezing’ provisions introduced by FA98/S122, see CG17207. For the disposal of assets by companies within the charge to corporation tax these provisions will continue to apply on or after 6 April 2008 by virtue of TCGA92/52A.

In general, indexation will not be able to create or increase a loss on disposals on or after 30 November 1993. However, there are special rules for dealing with indexation following no gain/no loss transfers of an asset, see CG12705, before 30 November 1993. Amounts of indexation which were included in a transferee’s acquisition cost on no gain/no loss transfers of an asset before 30 November 1993 can still create or increase losses, see CG17730+. See also CG17402 regarding disposals made on or after 6 April 2008 where the asset was acquired by way of a no gain/no loss transfers of an asset before April 1998.

There is a transitional relief available for the years 1993-94 and 1994-95 to individuals, and trustees of settlements made before 30 November 1993. Details of the transitional relief are at CG17800+.

Disposals where the computations show a gain after indexation are not affected by the FA1994 changes. For these, the instructions and illustrative computations at CG17230+ will continue to apply.

General rule

Finance Act 1994 amended TCGA92/S53 so that, in relation to disposals on or after 30 November 1993, the amount of the indexation allowance to be given in the computation on a disposal is restricted to an amount which does not give rise to any loss. So if, on a disposal, there is

  • an unindexed gain which is greater than the indexation allowance (as described at CG17270+), there is no restriction to the indexation allowance, see example 1 at CG17721;
  • an unindexed gain which is less than the amount of indexation allowance, the allowance is reduced to a figure which gives neither gain nor loss, see example 2 at CG17721;
  • an unindexed loss, the indexation allowance is nil, see example 3 , CG17721.