Indexation allowance is an allowance which adjusts gains for the
effects of inflation. It runs from the month the shares were
acquired, to the earlier of the month when the shares are disposed
of or, for individuals, April 1998. Shares acquired by individuals
on or after 1 April 1998 do not qualify for indexation allowance.
Indexation allowance still applies for companies.
Indexation applies to the full acquisition cost of the
shares. This includes amounts charged to income tax from the month
the shares are acquired, as well as the original acquisition cost
(see
ERSM180030), even if the amounts
charged to income tax are incurred at a later date. For more
information about indexation allowance, see CG17200 onwards.
Taper relief replaces indexation allowance for periods after
5 April 1998 but it works in a different way. For more information
about taper see CG17895 onwards.
