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HMRC internal manual

Capital Gains Manual

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Indexation: disposals 30/11/93+: transitional relief: claims under S574

Claims under ICTA88/S574

An individual who has subscribed for shares in a qualifying trading company, and incurs a loss on disposal of those shares, may claim under ICTA88/S574 to set the loss against income, see VCM70000+. The amount of the allowable loss is computed in the normal way, and disposals on or after 30 November 1993 will be subject to the FA1994 changes described at CG17700+ and CG51625.

The transitional relief for indexation losses can apply to the calculation of allowable losses in these cases, as it does where the losses are set against capital gains. For the purposes of the transitional relief, a claim can be made under ICTA88/S574 to set an allowable loss against income both where

  • the disposal gives rise to an allowable loss, or
  • the disposal gives rise to neither a gain nor a loss, but an allowable loss would have arisen on the old indexation rules, see CG17800.

Disposals on which claims are made to set allowable losses against income under ICTA88/S574 are referred to as `Section 574 disposals’.

Indexation losses on ICTA88/S574 disposals are computed as described at CG17800+. The indexation loss can create, or increase, the allowable loss on a ICTA88/S574 disposal.

To calculate the amount of the transitional relief on a taxpayer’s ICTA88/S574 disposals in 1993-94, you need to establish

  • the amount of any reduction in 1993-94 chargeable gains in respect of indexation losses, see CG17820+; and
  • the amount of any indexation losses on the ICTA88/S574 disposals.

If the total of these amounts does not exceed £10,000, see below. If the total does exceed £10,000, see CG17850+.

If the total of the amounts above does not exceed the overall £10,000 limit on transitional relief, the losses on the ICTA88/S574 disposals can be increased by the relevant amounts of indexation loss. And the reduction in 1993-94 chargeable gains, if any, will be computed as in CG17820 and CG17826.