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HMRC internal manual

Capital Gains Manual

Non-Resident Capital Gains Tax (NRCGT) – Disposals on or after 6 April 2015: Companies: Special rules: Indexation

Sch 4ZZB/para 23 provides for indexation to apply when calculating the amount of a non-resident CGT gain or loss under various provisions of Sch 4ZZB.

 

Indexation allowance is a downward adjustment applied to a chargeable gain in order to take account of the effect of inflation over the period of ownership on the value of the asset disposed of.  The statutory provisions are at TCGA92/Part II, Chapter IV.  Indexation allowance ceased to be due to individuals in respect of disposals after 5 April 2008.  It continues to be due when computing gains which are charged to CT, i.e. most gains which accrue to companies.

 

That is in fact somewhat different from the position with ATED-related CGT.  The relevant provisions of TCGA92/Sch 4ZZA are such that a post-April 2013 ATED-related gain does not benefit from indexation allowance.  That was thought appropriate when the provisions were introduced, on the basis that such a gain is charged to CGT, and indexation allowance is given only in computing gains charged to CT.  Instead the ATED-related CGT legislation provides for notional indexation allowance (Sch 4ZZA/paras 4(1)/(5) and 6(3)/(4)), based on a fraction of the indexation allowance which would be due under Part II, Chapter IV.

 

In the case of non-resident CGT it was decided as a matter of policy that non-resident companies chargeable to NRCGT should not be denied indexation.  Otherwise they would effectively have been treated less favourably than UK resident companies making similar gains on disposal of similar UK residential property interests.

 

Sch 4ZZB/para 23 therefore provides that the various calculations laid down by Sch 4ZZB “are computed as if the computation were for corporation tax purposes”.  The only actual reference to indexation appears in the title to Sch 4ZZB/para 23, but it is clear from the context that the effect of the statute is to allow indexation in the case of companies; if the computation were for the case of an individual, indexation would not be used because it would not be available in such a case.

 

The legislation lists all the various computation provisions in Sch 4ZZB -

  • the notional post-April 2015 gain or loss, and the notional pre-April 2015 gain or loss, for the purposes of paras 6 and 7;
  • the gain or loss determined under Step 1 of para 9(2);
  • the notional post-April 2015 gain or loss for the purposes of para 13;
  • the gain or loss determined under Step 1 of para 14(3);
  • the notional post-April 2016 gain or loss, and the notional pre-April 2016 gain or loss for the purposes of para 15;
  • the notional post-April 2015 gain or loss, the notional pre-April 2015 gain or loss and the notional pre-April 2013 gain or loss for the purposes of para 17;
  • the notional post-April 2016 gain or loss, the notional pre-April 2016 gain or loss and the notional pre-April 2015 gain or loss for the purposes of para 19.