ACCA Advanced Taxation (ATX) Practice Exam

Is the indexation allowance available for both individuals and companies?

1. Yes, for both

2. No, only for individuals

3. No, only for companies

4. Yes, for certain qualifying individuals

The correct answer is: No, only for companies

The indexation allowance is a relief that allows for the adjustment of the cost of an asset based on inflation, effectively increasing the base cost for the purpose of calculating capital gains. It is essential to recognize that the indexation allowance is applicable in the context of companies and is no longer available to individuals. For individuals, the rules were changed in the Finance Act 2018, which means that individuals are not entitled to claim indexation allowance on gains from disposals made on or after January 1, 2018. Instead, individuals only have access to the annual exempt amount before calculating their capital gains tax liability. In contrast, companies are still permitted to claim indexation allowance for disposals of assets acquired prior to that date, allowing them to adjust the cost of those assets for inflation, which reduces their taxable gain when the asset is sold. Therefore, stating that indexation allowance is only available for companies aligns with the current legislation, resulting in the understanding that option C accurately reflects the privileges available for capital gains taxation under UK law.