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HMRC internal manual

Capital Gains Manual

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

Further conditions apply to the disposal of shares other than redeemable preference shares, since groups do not normally use ordinary shares for short term financing. An indexation restriction is only possible if all the following conditions are satisfied, TCGA92/S183 (1) and (3).

  • The companies were linked immediately before the disposal of the shares.
  • The companies were linked immediately after the acquisition of the shares by the company making the disposal, whether the shares were acquired by subscription or purchase.
  • The acquisition of the shares by the company making the disposal was wholly or substantially financed by one or more linked company loans, or linked company funded subscriptions, or by a combination of these.
  • The sole or main benefit which might have been expected to accrue from the acquisition of the shares was the obtaining of an indexation allowance on a disposal.

The last requirement may exclude many cases from further consideration. If it was intended that the funds provided by the acquisition should be put to commercial use for the benefit of the company issuing or disposing of the shares, it is less likely that the sole or main expected benefit from the acquisition was an indexation allowance on the disposal of the shares. If on the other hand the acquisition simply gave rise to a circular flow of funds within the group, you should consider the possibility that the expected benefit was an indexation allowance.