CG17310 | Indexation: from 6/4/88 example: basic computation

From HM Revenue & Customs · Capital Gains Manual

On 1 May 1988 Mr A buys three paintings for £20,000 each.

On 1 June 1992 he sells them.

  • The first is sold for £100,000 giving an unindexed gain

  • The second is sold for £15,000 giving an unindexed loss

  • The third is sold for £24,000 giving an unindexed gain

The tables, see CG17290, show that for a disposal in June 1992 of an asset acquired in May 1988, the indexation factor is 0.312, giving indexation of £6,240.

The computations are as follows:

-FIRSTSECONDTHIRD
Disposal Proceeds100,00015,00024,000
Cost20,00020,00020,000
Unindexed Gain80,000Loss (5,000)Gain 4,000
less Indexation6,2406,2406,240
Indexed Gain73,760Loss (11,240)Loss (2,240)

This shows that before 30 November 1993, indexation could

  • reduce a gain as with the first picture,

  • increase a loss as with the second, and

  • turn an unindexed gain into an indexed loss as with the third.

The effect of the changes applying with effect from 30 November 1993, see CG17700+, assuming a disposal on or after that date, would be that

  • the loss on the second would equal the unindexed loss, and

  • the unindexed gain on the third would be eliminated by indexation, but there would be no indexed loss.