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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: example

G has a ICTA88/S574 disposal in 1994-95 giving rise to an allowable loss of £90,000. The indexation loss in respect of the disposal is £20,000.

G had no disposals in 1993-94, and has no other disposals in 1994-95.

G’s income in 1993-94 is £35,000 and in 1994-95 is £40,000. Relief is claimed against income of both years under ICTA88/S574.

The ICTA88/S574 disposal is the only disposal on which the transitional relief can be given, so the whole of the £10,000 limit on the transitional relief is available on this disposal. So G’s allowable loss under the ICTA88/S574 claim is £90,000 + indexation loss (restricted to the limit of transitional relief) £10,000, = total £100,000.

The amount of the loss which can be set against G’s income in 1993-94 and 1994-95 is £35,000 + £40,000 = £75,000. The loss used against this income comprises

  • in respect of the amount of the loss, apart from the transitional relief,
£75,000 x 90,000   = £67,500
     
  90,000 + 10,000  
  in respect of the indexation loss  
     
£75,000 x 10,000   = £7,500
  90,000 + 10,000  

The amounts left after the set-off are

  • in respect of the amount of the loss, apart from the transitional relief,

£90,000 LESS £67,500 = £22,500

  • in respect of the indexation loss,

£10,000 LESS £7,500 = £2,500

The indexation loss is not available to carry forward beyond 1994-95. So the amount of the `surplus’ loss available for set-off against capital gains in 1995-96 or beyond will be the £22,500 only.