Advanced Taxation (UK) · Corporation tax: chargeable gains for companies

Computing Company Chargeable Gains and Indexation Allowance

Updated 11 October 2026 · Fact-checked

A company's chargeable gain is net disposal proceeds less allowable costs, less indexation allowance, which stops at December 2017. Indexation can reduce a gain to nil but cannot create or increase a loss. The gain is added to profits and taxed at corporation tax rates, not CGT rates.

Understand Computing Company Chargeable Gains and Indexation

A company that sells a capital asset, such as land, a building or shares, may make a chargeable gain. The gain is not taxed under capital gains tax. It is included in the company's taxable total profits and charged to corporation tax. So companies get no annual exempt amount and do not use the CGT rates of 18% and 24%.

The basic computation starts with the proceeds. Use disposal proceeds, or market value if the disposal is a gift or not at arm's length. Deduct incidental costs of sale, such as legal and agent fees. This gives net proceeds. Then deduct allowable costs: the original cost, incidental costs of acquiring it, and enhancement expenditure that is still reflected in the asset at disposal. The result is the unindexed gain.

Companies also get indexation allowance. It gives relief for inflation on the cost of the asset. The factor is (RPI in the month of disposal − RPI in the month of acquisition) ÷ RPI in the month of acquisition, rounded to three decimals. For disposals after 2017, the end month is frozen at December 2017. Inflation after that date gets no relief. An asset bought after December 2017 gets no indexation at all.

Indexation is worked out on each item of cost from the month it was incurred, so enhancement expenditure has its own factor. Indexation can reduce a gain to nil, but it cannot turn a gain into a loss or increase a loss. If the unindexed computation gives a loss, there is no indexation and the loss is the allowable capital loss.

The gain is then part of taxable total profits. Whether it is taxed at 19%, 25% or with marginal relief depends on the company's total profits for the period. Gains count in profits for the 19% and 25% limits and for augmented profits. In the exam, indexation factors are normally given in the question, so your job is the layout and the logic.

Key rules to remember

Chargeable gain layout: Net proceeds − allowable costs = unindexed gain; unindexed gain − indexation allowance = chargeable gain; Net proceeds are proceeds (or market value if applicable) less incidental costs of disposal.
Indexation factor: (RPI at disposal month − RPI at acquisition month) ÷ RPI at acquisition month; Round to three decimals. For disposals after 2017, use December 2017 as the end month. Assets acquired after that date get no indexation. Factors are normally given in the question.
Indexation allowance: Cost (or enhancement) × indexation factor, for each item of cost; Restricted so it cannot create or increase a loss. It is capped at the unindexed gain.
Tax on gains: Gain is included in taxable total profits and charged at 19% (small profits rate), 25% (main rate) or with marginal relief; Limits are £50,000 and £250,000, divided by the number of associated companies plus one. Adjust for short accounting periods. Marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits.
No annual exempt amount: Companies: no annual exempt amount and no CGT rates; The £3,000 annual exempt amount and the 18% and 24% rates apply to individuals, not companies.

How to solve Computing Company Chargeable Gains and Indexation questions

Use the same layout every time. It shows the marker each stage and keeps your working easy to follow for method marks.

1Identify the asset and the disposal date. Check it is a chargeable asset and decide whether any exemption or relief (for example rollover relief or substantial shareholding exemption) applies.
2Establish proceeds. Use actual proceeds, or market value if the disposal is a gift or not at arm's length. Deduct incidental selling costs to get net proceeds.
3List allowable costs: original cost, incidental acquisition costs and enhancement expenditure still reflected in the asset. Ignore revenue-type repairs.
4Deduct the costs from net proceeds to find the unindexed gain. If it is a loss, stop. No indexation applies and the loss is an allowable capital loss.
5Compute indexation on each cost item using the factor given, with the end date frozen at December 2017. Restrict the total to the unindexed gain.
6Deduct indexation to get the chargeable gain. Then offset any current-period capital losses.
7Add the net gain to the company's taxable total profits. Work out the tax at the right rate, checking associated companies, accounting period length and marginal relief if profits are between the limits.

Quickest way: Three-line gain layout

When to use it: Use it for straightforward single-asset questions where the examiner gives the indexation factors.

Write proceeds less selling costs, then less cost and enhancements, to reach the unindexed gain in one block.
Multiply each cost by its factor, add the results, and cap the total at the unindexed gain. Deduct to get the gain.
Add the gain to profits and apply the tax rate. If profits are above the upper limit, simply use 25% on the gain.

Common mistakes in Computing Company Chargeable Gains and Indexation

Letting indexation turn a gain into a loss or increase a loss.
Students multiply cost by the factor and deduct it automatically, without comparing it to the gain.
Fix: Always compute the unindexed gain first. Cap indexation at that figure. If there is a loss, give no indexation.
Giving indexation on inflation after December 2017.
Students use the disposal month as the end month for the factor.
Fix: Use December 2017 as the end month for disposals after that date. Give no indexation for assets bought after December 2017.
Applying the £3,000 annual exempt amount or the CGT rates of 18% and 24% to a company.
Students mix up personal and company capital gains rules.
Fix: Companies have no annual exempt amount. The gain goes into taxable total profits and is charged at corporation tax rates.
Forgetting to deduct costs of disposal before indexing, or indexing the selling costs.
Students treat all costs alike.
Fix: Deduct selling costs from proceeds. Index only the acquisition cost and enhancement expenditure, each from its own date.
Using one factor for the original cost and the enhancement expenditure.
Students shorten the working to save time.
Fix: Enhancement is indexed from the month it was incurred, so it has its own factor and its own line.
Ignoring associated companies or marginal relief when taxing the gain.
Students focus on the gain and forget the rate computation.
Fix: Check the profit limits, adjusting for associated companies and short periods. If profits fall between the limits, apply marginal relief.

Worked examples

Example 1

Bean Ltd sold a warehouse for £230,000. It paid £5,000 in selling costs. It bought the warehouse in 2012 for £200,000. The indexation factor from acquisition to December 2017 is 0.250. Compute the chargeable gain.

Show the solution

Net proceeds: £230,000 − £5,000 = £225,000.
Cost: £200,000.
Unindexed gain: £225,000 − £200,000 = £25,000.
Indexation allowance: £200,000 × 0.250 = £50,000.
The allowance cannot create a loss, so it is restricted to £25,000.
Chargeable gain: £25,000 − £25,000 = nil.

Answer: The chargeable gain is nil. Indexation is restricted to the unindexed gain of £25,000, and no allowable loss arises.

Example 2

Kiln Ltd sold a factory unit in November 2025 for £300,000, paying £6,000 in selling costs. It bought the unit in March 2012 for £120,000 and spent £30,000 on an extension in June 2015. Assume the indexation factor to December 2017 is 0.200 for the purchase and 0.100 for the extension. Kiln Ltd has no associated companies and taxable total profits of £600,000 before this gain for the year to 31 March 2026. Compute the chargeable gain and the corporation tax on it.

Show the solution

Net proceeds: £300,000 − £6,000 = £294,000.
Allowable costs: £120,000 + £30,000 = £150,000.
Unindexed gain: £294,000 − £150,000 = £144,000.
Indexation on purchase: £120,000 × 0.200 = £24,000.
Indexation on extension: £30,000 × 0.100 = £3,000.
Total indexation: £27,000, which is below the unindexed gain, so no restriction.
Chargeable gain: £144,000 − £27,000 = £117,000.
Taxable total profits: £600,000 + £117,000 = £717,000, above the £250,000 upper limit, so the main rate of 25% applies.
Tax on the gain: £117,000 × 25% = £29,250.

Answer: The chargeable gain is £117,000 and the corporation tax on it is £29,250 at 25%.

Exam tips

Show the layout in full: proceeds, costs, unindexed gain, indexation, gain. Method marks are given for each line, even if a factor is wrong.
Use the indexation factors in the question. Do not try to compute them from RPI unless RPI figures are given. Note the December 2017 freeze in your working.
State clearly that companies do not get the annual exempt amount and are not taxed at CGT rates. Examiners expect the contrast with individuals.
Always finish the tax step. Check the profit limits, associated companies, short periods and marginal relief, and give the tax on the gain.
In Section A scenarios, link the gain to wider advice. Examples are rollover relief, substantial shareholding exemption or timing of the disposal.

Practice questions from Corporation tax: chargeable gains for companies

Computing Company Chargeable Gains 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.

Computing Company Chargeable Gains and Indexation: frequently asked questions

Do companies pay capital gains tax?

No. A company's chargeable gains are included in its taxable total profits and charged to corporation tax. Companies have no annual exempt amount and do not use the 18% and 24% CGT rates.

Is indexation allowance still available for companies?

Yes, but it is frozen at December 2017. For a disposal after that date, indexation runs only up to December 2017. An asset acquired after December 2017 gets none.

Can indexation allowance create a capital loss?

No. It can reduce a gain to nil but cannot create or increase a loss. If the unindexed computation gives a loss, you give no indexation.

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

Normally the question gives the factor or enough information to use it. You should know the formula and the December 2017 cut-off. Round factors to three decimals if you do calculate one.

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

The gain is part of taxable total profits. It is taxed at 19% if profits are at or below the lower limit, at 25% if above the upper limit, and with marginal relief in between. The limits are £50,000 and £250,000 and are adjusted for associated companies and short periods.