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Taxation (UK) · Chargeable gains for companies

Indexation Allowance for Companies in ACCA TX-UK

Updated 11 October 2026 · Fact-checked

Indexation allowance gives a company relief for inflation on a chargeable asset. You multiply the asset's cost by an indexation factor. The factor runs from the month of purchase to December 2017 at most, because the allowance is frozen. It can reduce a gain to nil but cannot create or increase a loss.

Understand Indexation Allowance for Companies

A company that sells a chargeable asset pays corporation tax on the gain. Part of that gain may only reflect inflation. Indexation allowance gives relief for that part, so the company is taxed closer to its real gain.

The allowance applies to companies only. Individuals do not get it. A company's chargeable gain is the disposal proceeds, less allowable costs, less indexation allowance.

Indexation is frozen. Under the current rules, it only measures inflation up to December 2017. Even if the company sells the asset years later, the indexation period ends in December 2017. An asset bought after December 2017 gets no indexation allowance at all.

In the exam, the indexation factor is normally given to you in the question, or you are told the retail prices index (RPI) figures. You do not need to remember RPI values. You need to apply the factor correctly and know the loss rule.

The key rule is that indexation allowance can reduce a gain to nil, but it can never create or increase a loss. So you work out the gain before indexation first. If it is a gain, deduct indexation, capped so the result is not below zero. If it is already a loss, indexation is ignored.

Key rules to remember

Indexation factor
(RPI in month of disposal or December 2017, if earlier − RPI in month of acquisition) ÷ RPI in month of acquisition
Round to three decimal places. In the exam the factor is usually given. The end date is the earlier of the disposal month and December 2017.
Indexation allowance
Indexation allowance = allowable cost × indexation factor
If there is enhancement expenditure, index each item of expenditure from the month it was incurred.
Company chargeable gain
Proceeds − incidental costs of disposal − cost − enhancement expenditure = unindexed gain; then unindexed gain − indexation allowance, but not below nil
Indexation allowance is limited to the unindexed gain.
Loss rule
Indexation allowance cannot create or increase an allowable loss
If the unindexed figure is a loss, no indexation is given and the loss stands.
Freeze
No indexation after December 2017
Assets acquired after December 2017 get no indexation allowance.

How to solve Indexation Allowance for Companies questions

Use this order for any company disposal that involves indexation. The order matters because of the loss rule.

  1. 1Calculate the disposal proceeds. Use market value if the question says it is a gift or a connected-party sale.
  2. 2Deduct incidental costs of disposal and the original cost, plus any enhancement expenditure, to find the unindexed gain or loss.
  3. 3If the result is a loss, stop. No indexation allowance is given. Record the loss.
  4. 4If it is a gain, find the indexation factor. Use the period from acquisition to the disposal month or December 2017, whichever is earlier. Use the factor given in the question.
  5. 5Multiply the cost by the factor. Do this for each item of enhancement expenditure from its own date.
  6. 6Deduct the indexation allowance from the unindexed gain, but not below nil. Show the capped figure clearly.
  7. 7Add the chargeable gain to the company's profits. The company has no annual exempt amount and no separate gains rates; gains are taxed as part of taxable total profits.

Quickest way: Gain first, then index, then cap

When to use it: Use this for Section B and Section C questions where the indexation factor is given and you need a fast, safe figure.

  1. Write proceeds minus cost minus costs of sale. Circle the result.
  2. If it is negative, write the loss and move on.
  3. If it is positive, calculate cost × factor.
  4. Take the smaller of the unindexed gain and the indexation allowance as the relief.
  5. Gain = unindexed gain minus that relief.

Common mistakes in Indexation Allowance for Companies

  • Indexing right up to the date of sale when the sale is after December 2017

    Students assume inflation relief continues to the disposal date.

    Fix: Stop the indexation period at December 2017 for any disposal after that date. Use the factor given.

  • Using indexation to turn a gain into a loss

    Students deduct the allowance from the gain without checking the result.

    Fix: Cap the allowance at the unindexed gain. The chargeable gain cannot be below nil.

  • Adding indexation to an existing loss

    Students apply the same method to every disposal.

    Fix: Test the unindexed result first. If it is a loss, ignore indexation entirely.

  • Giving indexation on assets bought after December 2017

    Students remember that companies get indexation but forget the freeze.

    Fix: Check the purchase date. If it is after December 2017, there is no indexation allowance.

  • Applying the factor to proceeds or to the gain

    The word 'gain' makes students apply the factor to the gain.

    Fix: Multiply the factor by the allowable cost, and by each enhancement cost separately.

Worked examples

Example 1

Brook Ltd sold a warehouse in June 2024 for £400,000. It bought the warehouse in March 2010 for £250,000. Legal costs on sale were £5,000. The indexation factor from March 2010 to December 2017 is 0.250 (assume this is given). Calculate the chargeable gain.

Show the solution
  1. Proceeds £400,000 less costs of sale £5,000 = £395,000.
  2. Less cost £250,000 = unindexed gain £145,000.
  3. The result is a gain, so indexation applies.
  4. The sale is after December 2017, so the period ends in December 2017. The given factor is 0.250.
  5. Indexation allowance = £250,000 × 0.250 = £62,500.
  6. The allowance is less than the unindexed gain, so no cap applies.
  7. Chargeable gain = £145,000 − £62,500 = £82,500.

Answer: The chargeable gain is £82,500.

Example 2

Crest Ltd sold an asset in 2025 for £90,000. It bought the asset in January 2012 for £100,000. The indexation factor to December 2017 is 0.150 (given). Then consider a second asset sold for £130,000 that cost £110,000 in the same month, with the same factor. Explain the treatment of each.

Show the solution
  1. Asset 1: proceeds £90,000 less cost £100,000 = unindexed loss £10,000.
  2. Indexation allowance would be £100,000 × 0.150 = £15,000, but it cannot create or increase a loss.
  3. So no indexation is given. The allowable loss is £10,000.
  4. Asset 2: proceeds £130,000 less cost £110,000 = unindexed gain £20,000.
  5. Indexation allowance = £110,000 × 0.150 = £16,500.
  6. £16,500 is less than £20,000, so it is allowed in full.
  7. Chargeable gain = £20,000 − £16,500 = £3,500.

Answer: Asset 1 gives an allowable loss of £10,000 with no indexation. Asset 2 gives a chargeable gain of £3,500.

Exam tips

  • Read the purchase date first. If it is after December 2017, there is no indexation allowance.
  • The question normally gives the indexation factor. Use it as given and do not recalculate it.
  • Show the unindexed gain as a separate line. Markers look for it before the loss rule is applied.
  • Write the cap in words, such as 'indexation limited to the gain', to earn the method mark.
  • Do not mention an annual exempt amount for a company. Companies do not have one.

Practice questions from Chargeable gains for companies

Indexation Allowance for Companies: frequently asked questions

Does indexation allowance still apply to companies?

Yes, but only up to December 2017. After that date no further indexation accrues. An asset bought before then still gets the allowance up to December 2017, even if it is sold later.

Can indexation allowance create a capital loss?

No. It can reduce a gain to nil, but it cannot create a loss or make an existing loss larger. If the unindexed result is a loss, you ignore indexation.

Do I need to calculate the indexation factor in the TX-UK exam?

Usually the factor is given. If RPI figures are given instead, use (later RPI − earlier RPI) ÷ earlier RPI, rounded to three decimal places. Make sure the later month is no later than December 2017.

Do individuals get indexation allowance?

No. Indexation allowance is for companies only. Individuals pay capital gains tax without it.