HMRC details 31 March 1982 value claims for 1985-88 indexation

HMRC's Capital Gains Manual now sets out the full claim mechanics for the 1985 indexation changes in CG17570.GOV The page covers disposals in the April 1985 to March 1988 window and describes four amendments made by section 68 of, and Schedule 19 to, the Finance Act 1985: indexation allowance was extended to losses so it can create or augment an allowable lossGOV, the twelve-month waiting period was removed so indexation runs with immediate effect from the date expenditure was incurredGOV, taxpayers holding an asset on 31 March 1982 can claim for indexation to be calculated by reference to its market value on that dateGOV, and the pooling rules for shares were changed.

The provisions generally apply to disposals on or after "the 1985 date", which the manual defines as 1 April 1985 for holdings or disposals by companies and 6 April 1985 in any other caseGOV.

Where an asset held on 31 March 1982 is disposed of on or after that dateGOV, a claim may be made within two years of the end of the year of assessment in which the disposal occurredGOV for the indexation allowance to be computed by reference to the asset's market value on 31 March 1982 instead of by reference to relevant allowable expenditure incurred up to that dateGOV. The computation of the unindexed gain or loss is unaffected. Indexation is then computed by reference to notional relevant allowable expenditure, exactly as if the taxpayer had acquired the asset on that dateGOV: a lease is wasted for indexation purposes as if acquired then, and a freehold is valued by reference to its condition then, taking account of any lease in force on that date even if the land was sold after the lease had ended. The manual cites Henderson v Karmel's Executors (58TC201), a case on 6 April 1965 valuation, for the approach. Relevant allowable expenditure incurred after 31 March 1982 still qualifies for indexation in the normal way by reference to the date it was incurred.

A claim under section 68(5) may be made informally, for example by incorporating it in a computation, provided attention is drawn to it either in the computation itself or in a letter.GOV Late claims are dealt with in accordance with CG13700.

The new material also confirms two extensions. Assets held on 31 March 1982 that have no allowable expenditure, such as copyright, goodwill or an interest in a partnership, can still support a claim by reference to market value on that dateGOV, determined under the normal principles in CG16200C. And a transferee who did not personally hold the asset on 31 March 1982 can claim where the asset came through a no gain/no loss transfer from a spouse, a company, a predecessor constituency association in the case of land, or the Hops Marketing Board, provided the transferor had held it on that date or had acquired it through a chain of such transfers. In that case the transferee must deduct the indexation allowance already included in the deemed consideration when arriving at the unindexed gain or loss.

Legal basis: Finance Act 1985, section 68 and Schedule 19, as explained in HMRC Capital Gains Manual CG17570.