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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Indexation: disposals 30/11/93+: transitional relief: losses in 94/95

Where the £10,000 limit of indexation losses has all been used on disposals in 1993-94, either against capital gains or income, no further amount of transitional relief will be available for 1994-95.

Where, however, the £10,000 limit is not reached in 1993-94, further rules are needed to establish the amounts of indexation loss available for 1994-95.

  • If there are no further ICTA88/S574 disposals in 1994-95, you should compute the availability of indexation losses to the taxpayer in 1994-95 on the principles in CG17830 - CG17831.
  • If there are ICTA88/S574 disposals in 1994-95, see below.

If there are ICTA88/S574 disposals in 1994-95, and not all of the taxpayer’s £10,000 limit on transitional relief has been used in 1993-94, you need to establish

  • the amount of any reduction in 1994-95 chargeable gains in respect of indexation losses, see CG17830+; and
  • the amount of any indexation losses in respect of the ICTA88/S574 disposals in 1994-95.

If the total of the amounts above does not exceed the remaining amount of the overall £10,000 limit on transitional relief, the losses on the ICTA88/S574 disposals can be increased by the relevant indexation losses. And the reduction in 1994-95 chargeable gains, if any, will be computed as in CG17830 - CG17831.

If the total of the amounts above does however exceed the remaining amount of the overall £10,000 limit on transitional relief, the taxpayer may allocate the remaining amount of the £10,000 as they wish between the amounts of indexation loss which can be added to the ICTA88/S574 disposals, and the amounts of indexation loss which can be deducted from chargeable gains in the year.

Example

This example continues from the example in CG17847. In 1994-95 E has ICTA88/S574 disposals giving rise to allowable losses of £12,000. Indexation losses in respect of these disposals are £6,000.

E has other disposals in 1994-95 giving rise to allowable losses of £10,000.

Indexation losses in respect of these disposals are £7,000.

E also has disposals in 1994-95 giving rise to gains of £30,000.

You first establish the amount of the reduction in 1994-95 chargeable gains which would (on its own) have been available in respect of indexation losses, as follows

    £
     
  Relevant gains 1994-95  
  (gains £30,000 - losses £10,000) 20,000
less Exempt amount for the year 5,800
     
  Excess of relevant gains over exempt amount 14,200

The amount of the transitional relief would be the smallest of

  • the overall limit on the transitional relief, £10,000, less the amount used in 1993-94, £5,000, = £5,000;
  • the excess of relevant gains over the exempt amount for the year, £14,200;
  • the amount of indexation losses for 1994-95, £7,000, together with any unused indexation losses brought forward from 1993-94 (in this case Nil), = £7,000.

The remaining amount of the transitional relief, £5,000, is the smallest of these amounts. So the maximum amount by which E’s chargeable gains could be reduced would be £5,000.

You next add to this £5,000 the amount of indexation loss relating to the ICTA88/S574 disposals. This is £6,000, so the total is £11,000. This exceeds the remaining part of the overall limit on transitional relief available for use in 1994-95, which is £5,000. So the use of the indexation losses has to be restricted. E can claim a total of £5,000 of indexation losses, which can be allocated as the taxpayer wishes, between the additions to the losses available to set against income, and the reduction in chargeable gains in 1994-95.