Taxation (UK) · The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Chargeable Gains for Companies and Indexation in TX-UK

Updated 11 October 2026 · Fact-checked

A company's chargeable gain is disposal proceeds less allowable costs, less indexation allowance if the asset was held before December 2017. Indexation cannot create or increase a loss. There is no annual exempt amount. The gain joins taxable total profits and is taxed at corporation tax rates, not CGT rates.

Understand Chargeable Gains for Companies and Indexation

A company that sells a chargeable asset, such as land, buildings or shares, may make a chargeable gain. The gain is worked out in a similar way to an individual's gain. But the tax treatment is very different.

A company does not pay capital gains tax. Its chargeable gains are added to its other profits (trading profits, property income and so on) within taxable total profits. The whole amount is then charged to corporation tax. The rates in the Finance Act 2025 tables are the small profits rate of 19% and the main rate of 25%. The lower limit is £50,000 and the upper limit is £250,000. Marginal relief can apply between those limits.

There is no annual exempt amount for a company. The individual CGT rates (18% and 24%), and business asset disposal relief at 14%, do not apply to a company's gains. Be ready for exam questions that test exactly this difference.

The computation starts with proceeds. Use market value instead if the asset was gifted or sold to a connected person. Deduct the original cost, incidental costs of acquisition, enhancement expenditure still reflected in the asset when sold, and incidental costs of disposal. The result is the unindexed gain.

Indexation allowance then compensates for inflation. It is calculated as cost × index factor, with the factor rounded to three decimal places. It only runs up to December 2017, because it was frozen from then. In the exam the index factor is normally given to you. Indexation can reduce a gain to nil, but it can never create a loss or make a loss bigger.

Key rules to remember

Chargeable gain for a company: Proceeds (or market value) − incidental costs of disposal − cost − incidental costs of acquisition − enhancement expenditure = unindexed gain; unindexed gain − indexation allowance = chargeable gain; Enhancement expenditure counts only if it is still reflected in the state of the asset when sold.
Indexation allowance: Indexation allowance = allowable cost × index factor; Index factor is rounded to three decimals and given in the exam. Calculate it on cost and on each item of enhancement expenditure separately, using the factor for its date.
Limit on indexation: Indexation allowance is capped at the amount of the unindexed gain; Indexation cannot create or increase a capital loss. If the unindexed result is a loss, ignore indexation.
Annual exempt amount for companies: Nil; The £3,000 annual exempt amount applies to individuals only.
Corporation tax rates: 19% small profits rate; 25% main rate; limits £50,000 and £250,000; Gains are part of taxable total profits and of augmented profits when testing the limits.
Marginal relief: (Upper limit − augmented profits) × 3/200 × taxable total profits ÷ augmented profits; Applies when augmented profits are between the lower and upper limits. The limits are time-apportioned for short periods and divided by the number of associated companies plus one.

How to solve Chargeable Gains for Companies and Indexation questions

Use this layout for any company disposal question. Set it out in columns so that the examiner can follow each figure and award method marks.

1Identify the asset and check it is a chargeable asset disposed of by the company in the accounting period.
2Find the proceeds. Use market value if the asset was gifted or sold to a connected person.
3Deduct incidental costs of disposal, such as legal and agent fees, to get net proceeds.
4Deduct allowable costs: original cost, incidental costs of acquisition, and enhancement expenditure still reflected in the asset. Do not deduct repairs or revenue items.
5The result is the unindexed gain. If it is a loss, stop there. No indexation applies.
6For a gain, calculate indexation on each cost item as cost × index factor. Cap the total at the unindexed gain. Subtract it to get the chargeable gain.
7Net the gains and losses of the same period. Then use any capital losses brought forward against the remaining gain. Do not use an annual exempt amount.
8Add the net gain to taxable total profits and apply the 19% or 25% rate, with marginal relief if augmented profits fall between £50,000 and £250,000 (adjusted for the length of the period and associated companies).

Quickest way: Four-line gain layout

When to use it: Use this for a Section B objective test case or a short Section C requirement where you just need the gain figure.

Write: Proceeds − selling costs = net proceeds.
Write: less cost + purchase costs + enhancement = unindexed gain.
Write: indexation = each cost × its given factor, capped at the unindexed gain. Deduct to get the chargeable gain.
Finish: net off losses and add the gain to taxable total profits. Compare augmented profits with £50,000 and £250,000 (adjusted for the length of the period and associated companies). Apply 19% if below the lower limit, 25% if above the upper limit, or the main rate less marginal relief if between them. Do not deduct a £3,000 exempt amount.

Common mistakes in Chargeable Gains for Companies and Indexation

Deducting the £3,000 annual exempt amount from a company's gain.
Students carry over the individual CGT method from other TX topics.
Fix: Remember that companies pay corporation tax on gains and have no annual exempt amount. Write 'no AEA' next to your working.
Using the 18% or 24% CGT rates on a company's gain.
The word 'gain' triggers the CGT rate table.
Fix: Add the gain to taxable total profits and apply the corporation tax rates (19%, 25% and marginal relief).
Letting indexation turn a gain into a loss, or make a loss larger.
Students apply the allowance mechanically without comparing it to the gain.
Fix: Work out the unindexed gain first. If it is a loss, ignore indexation. If it is a gain, indexation is capped at that gain.
Applying one index factor to all expenditure.
The enhancement expenditure was incurred later than the original purchase and needs a different factor.
Fix: Index each item of expenditure separately, using the factor for its own date. Note that indexation only runs to December 2017.
Setting a capital loss against trading profits.
Students confuse capital losses with trading losses.
Fix: Capital losses can be set only against chargeable gains, in the same period first and then carried forward. They cannot reduce trading or property profits.
Forgetting that gains count towards the corporation tax limits.
Students compute the gain and stop, forgetting how it affects the rate.
Fix: Include the gain in taxable total profits and in augmented profits before deciding on the rate or marginal relief.

Worked examples

Example 1

Ridge Ltd sells a warehouse in December 2025 for £400,000, incurring legal and agent costs of £8,000. It bought the warehouse in June 2010 for £150,000, with legal costs of £5,000. In 2012 it spent £40,000 on an extension, which is still part of the building. The index factor from June 2010 to December 2017 is 0.250. The index factor from the 2012 date to December 2017 is 0.180. Calculate the chargeable gain.

Show the solution

Net proceeds: £400,000 − £8,000 = £392,000.
Allowable costs: £150,000 + £5,000 = £155,000 for the purchase, plus £40,000 enhancement. Total £195,000.
Unindexed gain: £392,000 − £195,000 = £197,000.
Indexation on cost: £155,000 × 0.250 = £38,750.
Indexation on enhancement: £40,000 × 0.180 = £7,200.
Total indexation: £38,750 + £7,200 = £45,950. This is less than the unindexed gain, so no cap applies.
Chargeable gain: £197,000 − £45,950 = £151,050.

Answer: The chargeable gain is £151,050. It is added to Ridge Ltd's taxable total profits and charged to corporation tax. No annual exempt amount is available.

Example 2

In the year to 31 March 2026, Fern Ltd has trading profits of £300,000. It sells asset A for £90,000 (cost £70,000, index factor 0.100). It sells asset B for £50,000 (cost £80,000, index factor 0.200). It has a capital loss of £5,000 brought forward. Ignore selling costs. Calculate the chargeable gains included in taxable total profits and the capital losses carried forward.

Show the solution

Asset A unindexed gain: £90,000 − £70,000 = £20,000.
Indexation on A: £70,000 × 0.100 = £7,000. Chargeable gain on A: £20,000 − £7,000 = £13,000.
Asset B unindexed result: £50,000 − £80,000 = loss of £30,000.
Indexation cannot increase a loss, so the loss on B stays at £30,000.
Net the current-period items: £13,000 gain − £30,000 loss = net loss of £17,000.
The brought forward loss of £5,000 is not used, as there is no net gain for the period.
Losses carried forward: £17,000 + £5,000 = £22,000.

Answer: The net chargeable gains in taxable total profits are nil. Capital losses of £22,000 are carried forward to set against future chargeable gains only. Fern Ltd's taxable total profits remain £300,000 from trading, so the main rate of 25% applies.

Exam tips

Look for the word 'company' in the scenario. If you see it, use corporation tax and ignore the annual exempt amount and the CGT rates.
Show the unindexed gain as a separate line. If indexation is capped, the examiner can see you understood the rule.
The index factor is given. Do not spend time calculating it. Just apply it to the right cost items and round if told to.
Use the order of loss relief: current-year losses first, then losses brought forward. Only the excess loss is carried forward.
In OT questions on tax payable, add the gain to the other profits before choosing the rate. Check whether marginal relief could apply.

Practice questions from The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Chargeable Gains for Companies and Indexation in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalComputing Company Chargeable Gains and Indexation

Chargeable Gains for Companies and Indexation: frequently asked questions

Do companies get an annual exempt amount on chargeable gains?

No. The £3,000 annual exempt amount is for individuals. A company pays corporation tax on the whole of its chargeable gains after indexation and loss relief.

What rate of tax applies to a company's chargeable gain?

The gain is included in taxable total profits and charged at corporation tax rates. For the financial year 2025 these are 19% for small profits and 25% for the main rate, with marginal relief between £50,000 and £250,000.

How is indexation allowance calculated in TX-UK?

You multiply each item of allowable expenditure by the index factor given in the question, up to December 2017. It reduces a gain but cannot create or increase a loss.

What is the difference between company gains and individual capital gains tax?

A company pays corporation tax on gains with indexation and no annual exempt amount. An individual pays CGT at 18% or 24% after the £3,000 annual exempt amount, with no indexation.