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HMRC internal manual

Capital Gains Manual

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

E has ICTA88/S574 disposals in 1993-94 giving rise to allowable losses of £15,000. On the old indexation rules, see CG17800, the allowable losses would have been £18,000. So E’s 1993-94 indexation losses on these disposals are £3,000.

E has other disposals in 1993-94 giving rise to allowable losses of £14,000.

Indexation losses in respect of these disposals are £2,000.

E also has disposals in 1993-94 giving rise to gains of £23,000.

You first establish the amount of the reduction in 1993-94 chargeable gains which would (on its own) have been available in respect of indexation losses, as follows

    £
     
  Relevant gains  
  (gains £23,000 - losses £14,000) 9,000
less Exempt amount for the year 5,800
     
  Excess of relevant gains over exempt amount 3,200

The amount of the transitional relief would be the smallest of

  • the overall limit on the transitional relief, £10,000; or
  • the excess of relevant gains over the exempt amount for the year, £3,200; or
  • the amount of the indexation losses relating to the disposals included in the computation, £2,000.

The amount of the indexation losses relating to the disposals included in the computation is the smallest of these amounts. So the maximum amount by which E’s chargeable gains could be reduced in 1993-94 would be £2,000.

You next add to this £2,000 the amount of indexation loss relating to the ICTA88/S574 disposals. This is £3,000, so the total indexation losses which could be used in 1993-94 would be £5,000. As this is less than the overall limit of £10,000, all these amounts are available to E.

The result is that E has 1993-94 gains subject to CGT as follows:

    £
     
  Net chargeable gains 9,000
less Transitional relief 2,000
    7,000
less Exempt amount 5,800
     
  1993-94 gains subject to CGT 1,200

In addition, E can set off against income under ICTA88/S574 an amount of £15,000 plus indexation losses £3,000 = £18,000.

E has used £2,000 + £3,000 = £5,000 of indexation losses in 1993-94. If E has further indexation losses in 1994-95, these may be used up to a maximum of £5,000 (that is, the £10,000 overall limit LESS £5,000 used in 1993-94).