The Indexation Allowance, which provides tax-relief for companies’ capital gains on property and assets, has been frozen to bring the corporate system “into line with personal capital gains tax”.
The measure was announced in Chancellor Philip Hammond’s Autumn Budget, and is highly likely to have an impact on private GPs when they come to sell their surgeries.
The Indexation Allowance allows for the effect of inflation when calculating the chargeable gains of companies or organisations. Any part of the gain which is deemed to have been caused by inflation can be taken tax-free.
The gov.uk website gives the following example:
Your company sold an asset in November 2015 for £200,000.
Deduct the amount you bought it for in March 2001, which was £120,000. £200,000 – £120,000 = £80,000.
Deduct £10,000 spent improving the asset in June 2010. £80,000 – £10,000 = £70,000 profit.
Find the inflation factor in HMRC’s Indexation Allowance for March 2001 (0.509), and multiply it by the amount you bought the asset for. £120,000 × 0.509 = £61,080.
Find the inflation factor for the improvement costs (0.159), and multiply it by those costs (£10,000). 0.159 × £10,000 = £1,590.
Take these figures away from the profit. £70,000 – £61,080 – £1,590 = £7,330 chargeable gain.
Removing the relief is expected to cost business owners around £1.8 billion over the next five years.
Announcing the change in November 2017, the Chancellor said: “There is a case now for removing the anomaly of the indexation allowance for capital gains – bringing the corporate system into line with personal capital gains tax.”