»Ê¹ÚÌåÓýapp

»Ê¹ÚÌåÓýapp following example illustrates an appropriate method for restricting indexation allowance on a disposal of shares other than redeemable preference shares under TCGA92/S183 (2). »Ê¹ÚÌåÓýapp starting point is a disposal on or after 15 March 1988.

Step 1

Apply the general identification rules. »Ê¹ÚÌåÓýappse include the bed and breakfasting rule in TCGA92/S106 and the ten day rule in TCGA92/S107 (3). If on applying these rules no indexation allowance is due on the disposal there is no need to proceed further. »Ê¹ÚÌåÓýapp following steps are only necessary in relation to pooled shares.

Step 2

Apply the tests in TCGA92/S183 (3) to every acquisition since linkage so that all the acquisitions are divided into caught' acquisitions and otherâ€� acquisitions.

Step 3

Allocate any disposals before 15 March 1988 so far as possible to the various `caught� acquisitions, and to each of those acquisitions on a proportionate basis.

Step 4

Apportion the shares disposed of to the caught' and otherâ€� holdings on a pro rata basis.

Step 5

Compute what the indexation allowance would have been if each tranche of each `caughtâ€� acquisition now deemed to be disposed of had been a separate acquisition which had never been included in a pool. »Ê¹ÚÌåÓýapp total of these notional indexation allowances gives the appropriate indexation restriction.

Step 6

Deduct the aggregate of the indexation allowances computed in Step 5 from the indexation allowance otherwise due on the disposal, but not so as to affect the calculation of the indexed pool of expenditure.

Example

Date	-	-
18 May 1982	acquisition	15,000 shares at £2 each
6 Dec 1982	rights issue	2 for 3 at £1 each
28 Aug 1985	disposal	5,000 shares for £3 each
29 March 1986	acquisition	4,000 shares at £3.50 each
2 April 1986	disposal	2,000 shares for £4 each
12 Aug 1986	disposal	1,000 shares for £4.50 each
1 Jan 1989	disposal	500 shares for £5 each.

»Ê¹ÚÌåÓýapp companies became linked on 31 December 1985. »Ê¹ÚÌåÓýapp acquisition of shares on 29 March 1986 is caught by TCGA92/S183 (3).

This example assumes an inflation rate of 5 per cent per annum for indexation purposes from August 1986.

Computation of Indexation Allowance before Restriction

-	Shares held	Relevant expenditure	Indexed pool
event	-	£	£
May 1982 acquired	15,000	30,000	30,000
6 Dec 1982 £30,000 x RE - RL	-	-	327
RL	-	-	-
right issue	10,000	10,000	10,000
-	25,000	40,000	40,327
28 Aug 1985 indexation	-	-	6,343
-	-	-	46,670
disposal	5,000	8,000	9,334
-	20,000	32,000	37,336
29 March 1986 indexation	-	-	486
-	-	-	37,822
acquired	2,000	7,000	7,000
-	22,000	39,000	40,822
12 August 1986 indexation	-	-	505
-	-	-	45,327
disposal	1,000	1,773	2,060
-	21,000	37,227	43,217
1 Jan 1989 indexation	-	-	5,047
-	-	-	48,314
disposal	500	886	1,150
-	20,500	36,341	47,164

* 4,000 acquired but 2,000 sold within ten days. »Ê¹ÚÌåÓýapp ten day rule in TCGA92/S107(3) applies.

Restriction of Indexation Allowance

Step 1

Apply ordinary identification rules.

Steps 2 and 3

Distinguish acquisitions between caught' and otherâ€� shares. Assume any disposals before 15 March 1988 were of `caughtâ€� shares.

-	‘C²¹³Ü²µ³ó³Ùâ€�	‼«³Ù³ó±ð°ùâ€�
May 1982	-	15,000
December 1982	-	10,000
August 1985	-	(5,000
-	-	sold)
March 1986	2,000	-
-	(net)	-
-	2,000	20,000
August 1986	1,000	-
-	1,000	20,000

Step 4

‘caught� shares	500	x	1,000	=	24
-	-	-	21,000	-	-
‘other� shares	500	X	20,000	=	476
-	-	-	21,000	-	-

Step 5

Compute indexation on 24 shares acquired in March 1986 for £3.50 each and disposed of in January 1989, say £12.

Step 6

Deduct £12 from indexation otherwise available.

£1,150 - £886 = £264 - £12 = £252

Chargeable Gain Summary

-	-	-	£
-	proceeds	-	2,500
less	cost	-	886
-	-	unindexed gain	1,614
less	indexation	-	252
-	-	chargeable gain	1,362