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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Groups: restriction of indexation allowance: outline

This means that if company A lends money to company B, and the debt is not a debt on a security, there are no capital gains consequences when B repays the debt to A, or A otherwise disposes of it. If however, before FA88, A lent money to B by way of a debt on a security, and B subsequently repaid the loan, A would obtain an indexation allowance on the disposal represented by the repayment. Even if B repaid the loan in full so that there was no gain or loss before indexation, the indexation allowance could create an allowable loss. The same applied if A provided finance to B by way of subscription for shares. The indexation allowance on the repayment or redemption of the shares could, before FA88, create an allowable loss. Some groups exploited these provisions to generate indexation allowances on group financing arrangements. And within a group the same finance could be provided many times over from company to company, so that it was possible to multiply indexation allowances virtually at will.