Corporation Tax

Indexation allowance and rebasing

Produced by Tolley in association with Jackie Barker of Wells Associates
  • 22 Feb 2022 10:04

The following Corporation Tax guidance note Produced 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
  • Practical points

Indexation allowance and rebasing

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 Calculation of corporate capital 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 can only reduce it to nil. It cannot create or increase a loss.

Indexation allowance has been frozen with effect from 1 January 2018. For disposals made on or after this date, indexation allowance is only given up to December 2017. No indexation allowance is available for expenditure incurred after 31 December 2017. See also Simon’s Taxes C2.301–C2.303, C2.717 and C2.718.

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:

  1. RD = the RPI for December 2017 or, if earlier, the month of disposal

  2. RI = the RPI for the later of the month in which the expenditure was incurred or March 1982

The RPI for December 2017 is 278.1.

The fraction

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Indexation allowance and rebasing

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

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