Indexation allowance and rebasing

By Tolley in association with Jackie Barker of Wells Associates
Corporation_tax_img3

The following Corporation Tax guidance note by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:

  • Indexation allowance and rebasing
  • Indexation allowance
  • Rebasing rules

This guidance note explains the general rules surrounding the availability of indexation allowance on the disposal of company assets and provides information on the rebasing rules for assets held on 31 March 1982. For an overview of the general position regarding company disposals, please refer to the Corporate chargeable gains guidance note.

Indexation allowance

Indexation allowance is given to allow for the effect of inflation on the value of assets and is based on the Retail Price Index (RPI). When calculating the tax position on the disposal of a company asset, indexation allowance is deducted from the unindexed gain but you can only reduce it to nil. It cannot create or increase a loss.

TCGA 1992, s 53

As announced at Autumn Budget 2017, indexation allowance has been frozen with effect from 1 January 2018. For disposals made on or after this date, indexation allowance will, in effect, only be given up to December 2017. See the Autumn Budget 2017 ― corporate tax overview news item. See also Simon’s Taxes C2.301–C2.303, C2.717 and C2.718 (subscription sensitive).

TCGA 1992, s 53(1B); FA 2018, s 26

The indexation allowance is calculated by applying the following fraction to the allowable cost or March 1982 value depending upon whichever is higher and any other allowable expenditure. The allowance is not available on the costs of disposal. The fraction is:

(RD – RI) / RI

Where:

    More on Corporate capital gains: