Commentary

C2.303 Calculation of indexation allowance

Capital gains tax
Capital gains tax | Commentary

C2.303 Calculation of indexation allowance

Capital gains tax | Commentary

C2.303 Calculation of indexation allowance

Indexation allowance is not available to individuals, trustees and personal representatives for disposals on or after 6 April 2008. It continues to be available to companies but is frozen from 1 January 2018 so for disposals on or after this date the allowance is calculated up to December 2017.

The indexation allowance on a disposal is the sum total of the indexed rises for each item of qualifying expenditure1. Indexation allowance is not given for CGT disposals for periods after April 19982, and for corporation tax disposals for periods after December 20173.

The indexed rise in respect of an item of qualifying expenditure is calculated by multiplying the deductible amount of expenditure by the decimal equivalent of the following fraction4:

The fraction reflects the increase in the retail prices index.

RI is the retail prices index for the month in which the item of expenditure was incurred or, if later, March 19825. Expenditure in connection with the acquisition of an asset is regarded for this purpose as incurred on the date when the asset was acquired or provided6. Expenditure on improving or enhancing the value of the asset is treated as incurred on the date when it became due and payable7, irrespective of when the value of the asset actually increases as a result of that expenditure.

RD is the retail prices index for the month in which the disposal takes place or ,in the case of a CGT disposal, the earlier of that month and April 19988 and, in

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