Indexation allowance and taper relief
Indexation allowance is an allowance which adjusts gains for the effects of inflation. It runs from the month the shares were acquired, to the earlier of the month when the shares are disposed of or, for individuals, April 1998. Shares acquired by individuals on or after 1 April 1998 do not qualify for indexation allowance. Indexation allowance still applies for companies.
Indexation applies to the full acquisition cost of the shares. This includes amounts charged to income tax from the month the shares are acquired, as well as the original acquisition cost (see ERSM180030), even if the amounts charged to income tax are incurred at a later date. For more information about indexation allowance, see CG17200 onwards.
Taper relief replaces indexation allowance for periods after 5 April 1998 but it works in a different way. For more information about taper see CG17895 onwards.