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HMRC internal manual

Capital Gains Manual

Life interests: extension to non-life interests: example

Three assets are put into trust in May 1989. Each was worth £50,000 and was subject to a hold-over claim on a gain of £40,000. The beneficiary B had an interest in possession which was not a life interest in the entire settled property.

In 1993 B dies and the assets on that date were each worth £110,000. On B’s death C became absolutely entitled to Asset 1, and D had a life interest in possession in Assets 2 & 3.

Later in 1993 Asset 2 was sold for £140,000.In 1994 D died and X became absolutely entitled to Asset 3, then worth £200,000.

The indexation factor is 0.250 for all disposals

The indexation factor is 0.250 for all disposals            
Asset 1       £    
  Deemed Disposal Proceeds       110000  
less  Cost Market Value (1989)     50000  
  less Held-Over     40,000 10000
    Unindexed Gain       100000
Less  Indexation          
  10000 x 250 2500    
Indexed Gain   97,500        

Concession allows use of 1993 value but reduces it by the amount of the held-over gain.

Asset 2       £
Disposal Proceeds       140000
less Market Value (on death of B)   110000  
  less Held-Over gain 40000 70000
    Unindexed Gain   70000
less Indexation   70,000 x .250 17500
    Indexed Gain   52,500

Asset 3

Sections 73 and 74 apply in the normal way without any concession. The chargeable gain is equal to the held-over gain of £40,000.

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. For indexation allowance see CG17207+ and for taper relief see CG17895+.