Share this content
Group of lighting candles in black background

Farewell to indexation allowance: 1982-2017

22nd Jan 2018
Share this content

The last indexation allowance tables have just been released. It is always sad to say goodbye to an old friend, especially one which has been so helpful in reducing tax payable.

Born in 1982

Capital gains tax was invented in April 1965. Before that, the income from the sale of assets was subject to income tax, or not taxed at all. The 1970s saw significant levels of inflation in the UK, and it was deemed to be unfair to tax people on the growth in the value of their assets that was simply due to the increase in general prices. 

Hence, taxpayers were given the option to rebase the cost of their assets at 31 March 1982, and to adjust that 1982 value by the rate of inflation – measured by the retail price index (RPI), until the date of disposal. This adjustment was called the indexation allowance.

The effect of the indexation allowance has been to take out the growth in the value of the asset due to general inflation and leave the residue of “added value” to be subject to tax. However, the indexation allowance can’t create or increase a capital loss on disposal of an asset. 

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:

Content lock down, tick icon

View all AccountingWEB content

Content lock down, tick icon

Comment on articles

Content lock down, tick icon

Watch our digital shows and more

Access content now

Already have an account?

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.