CG17540 - Introduction and computation: indexation: disposals April 1982 to March 1985
Commencement date for indexation
The 'operative date' referred to in the following guidance is 1 April 1982 for companies and 6 April 1982 for other taxpayers. An indexation allowance might be due where a disposal, including a part-disposal, of an asset occurred on or after the 'operative date', but not in all cases.
This part of the guidance concerns the provisions for disposals on or after the `operative date' but before the `1985 date', see CG17570.
Main differences from 1988 provisions
Particular features to note in relation to the indexation allowance for this period are as follows-
i) No indexation allowance was given where, apart from that allowance, there would be an allowable loss, nor could the indexation allowance create a loss.
ii) No allowance was due unless the asset had been owned by the taxpayer disposing of it for at least twelve months (even if it had been acquired prior to the `operative date') except in certain no loss, no gain cases. RI was the factor for the month 12 months after the expenditure was incurred, or for March 1982, whichever was the later.
iii) No indexation allowance was available unless the disposal occurred on or after the `operative date'.
iv) The allowance was available, subject to (ii) above, regardless of when the asset was acquired but the method of calculation ensured that no adjustment was made for inflation prior to the `operative date'.
v) The allowance was always calculated by reference to the cost figure in the computation. The market value on 31 March 1982 was of no relevance.
FA82/S86 (1) (c) & FA82/S86 (5)
No loss rule
Indexation could only apply if the computation before indexation gave an unindexed gain. Therefore the general rule of TCGA92/S16 (1), that losses are computed in the same way as gains, was disregarded to this extent.
If there was an unindexed gain, but indexation exceeded this amount, then there was neither loss nor gain.
FA82/S86 (2) (a)
Original wording
The original wording of FA82/S86 (2)(a) referred to the `gross gain' rather the `unindexed gain or loss'. This change merely reflects the inclusion of losses from 1985. This is explained by the speech of Lord Jauncey in Smith v Schofield.
No gain, no loss cases: 12 month rule
FA82/SCH13/PARA3 (3)
Special rules applied where an asset was acquired-
- from the spouse of the person disposing of the asset and TCGA92/S58, see CG22200+ applied; or
- from a company within the same group as the company acquiring the asset and either TCGA92/S139 or TCGA92/171, applied to the transfer, see CG52800+ and CG45300+; or
- after 5 April 1983 and consisted of land, from an existing constituency association by a successor association and TCGA92/S264, applied.
- within FA82/S148 from the Hops Marketing Board (now repealed 2004).
The special rules were limited to these four categories of no gain, no loss transfers because with no others can the asset be regarded to the same extent as remaining in the same ownership.
FA82/SCH13/PARA3 (4) & (5)
In a case within the above categories, where the transferor had incurred any item of allowable expenditure on the asset 12 months or more prior to the transfer, the transferee would be entitled to indexation allowance in respect of that expenditure from the month in which the date of the transfer fell, that is, it did not have to wait another 12 months before its indexation allowance commenced. If the transferor had incurred any item of allowable expenditure on the asset less than 12 months before the transfer, the transferee would be entitled to indexation allowance only from the twelfth month after the expenditure was incurred.
FA82/SCH13/PARA3 (6)
Where there had been a continuous chain of transactions under sub-heads (a) or (b) above, it was permissible to look through the chain to determine the date on which any item of expenditure on the asset was incurred and for which month the indexation allowance to the transferee commences.
12 month rule
For example, A Ltd, B Ltd and C Ltd are members of the same group of companies at the relevant times.
A Ltd buys an asset from outside the group for £10,000, in August 1982, and transfers it to B Ltd under the provisions of ICTA70/S273, in December 1982.
B Ltd transfers it to C Ltd in February 1983, again under TCGA92/S273. C Ltd sells the asset for £15,000 to an outsider in April 1983.
The chargeable gain to C Ltd is £5,000 and no indexation allowance is available because looking through the chain of companies, the asset was not acquired by A Ltd more than 12 months before its sale by C Ltd.
If, however, A Ltd had bought the asset in August 1981, indexation allowance would be available to A Ltd from August 1982 to December 1982 to B Ltd from December 1982 to February 1983 and to C Ltd from February 1983 to April 1983.
For the purposes of indexation the rules above took precedence over any provision in the Capital Gains legislation which provided for a no gain, no loss disposal and required that the date of acquisition by a transferee of an asset should be deemed to be the date upon which the transferor acquired it.
Loss after no loss/gain occasion
FA82/SCH13/PARA3 (2)
In order to ensure that the transferee does not obtain excessive indexation allowance under the rule that the allowance must not create a loss, where a loss accrues on the transferee's subsequent disposal of the asset in any no gain no loss situation, that loss should be reduced by either the amount of the indexation allowance, if any, attributable to the transferor or such an amount which will ensure neither a gain nor a loss accrues, whichever is the less.
This is not restricted to cases within CG17544.
Shares and securities
The provisions relating to shares and securities had significant differences, see the section beginning at CG50500.