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HMRC internal manual

Capital Gains Manual

Indexation: disposals 30/11/93+: S574 relief against income of other years

Relief under ICTA88/S574 can be claimed against income of years other than the one in which the loss arose. The relevant rules were changed by FA1994, see VCM46300, with the result that the years against which losses could be claimed are as follows.

  • Losses arising in years up to and including 1993-94 can be claimed against income of the year in which the loss arose, OR THE SUBSEQUENT YEAR;
  • Losses arising in years 1994-95 onward can be claimed against income of the year in which the loss arose, OR THE PRECEDING YEAR.

See VCM46350. The effect of this is that losses on ICTA88/S574 disposals in 1993-94 or 1994-95 can only be claimed against income of either of those years. Since the transitional relief applies for both those years, the amount of the losses can be increased by indexation losses, as described at CG17840+, whether the losses are set against the taxpayer’s income in 1993-94 or 1994-95.

Losses on disposals in 1992-93 can be claimed under ICTA88/S574 against the taxpayer’s income in 1993-94. As these losses will have arisen before 30 November 1993, there will be no restriction on indexation allowance in computing the amount of these losses.

Losses on disposals in 1995-96 can be claimed under ICTA88/S574 against the taxpayer’s income in 1994-95. Any losses carried back in this way cannot be increased by indexation losses because the transitional relief rules only apply to ICTA88/S574 disposals in 1993-94 and 1994-95.

S574 relief not wholly against income

The ICTA88/S574 disposals may give rise to greater allowable losses than the taxpayer can use against income. In these circumstances the balance of the allowable losses remain available as capital losses, to set against capital gains of the year, or to carry forward against gains of future years, see VCM46300. These `surplus’ losses on ICTA88/S574 disposals, including any indexation losses attributed to them, will be available for set-off against the taxpayer’s chargeable gains in 1993-94 or 1994-95, as described previously. However the indexation losses in these `surplus’ losses cannot be used after 1994-95. So, if the losses are not all used in 1993-94 or 1994-95, the part of the losses referable to indexation losses would need to be removed from the amount carried forward to 1995-96, or beyond.

In these cases, you should calculate the amount which needs to be removed on the basis that the indexation loss, and any other part of the overall loss, will have been used proportionally in any set-off against income.