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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Groups: indexation allowance restriction: not redeemable preference shares

No indexation allowance is due on the disposal of ordinary shares if all the following conditions are satisfied.

  • The companies were linked immediately before the shares were disposed of.
  • The companies were linked when the shares were acquired.
  • The acquisition of the shares was wholly or substantially financed by loan finance from a linked company, or by a subscription for shares which was itself financed by a loan from a linked company.
  • The sole or main benefit which might have been expected to accrue from the acquisition was an indexation allowance on the disposal of the shares.

If the holding of shares on disposal includes some to which these provisions apply and some to which they do not, the indexation allowance is restricted by an amount which is just and reasonable in the circumstances. There are anti-avoidance provisions to prevent companies sidestepping these rules by

  • converting shares into debts on a security or vice versa
  • transferring assets between companies in the same group
  • directing loans through passive unassociated intermediaries
  • entering into other arrangements.

Detailed instructions are at CG46180+.