The removal of capital gains indexation allowance for companies, first announced by Philip Hammond in the Autumn Budget 2017, came into effect on the 1st January 2018. The measure aimed to align companies’ treatment of capital gains with that of individuals, whose allowance was removed in 2008.
Under the new system, the indexation allowance which is applied to determine chargeable gain when a company makes a capital gain, and which allows companies to write off inflation from the value of a sold asset, will be calculated using RPI up to December 2017. Prior to this measure, the allowance was calculated up to the month in which disposal of the asset occurred.
The Treasury hopes that this will allow for a simplification of tax calculations, with the potential for some on-going savings, though it admits that these savings could be negligible, and that companies may encounter one-off costs whilst they familiarise themselves with the new rules. It does not foresee any macroeconomic impacts on businesses, though expects to raise £1.2bn for the Government over the next five years..
Despite the changes, it is is still possible for limited companies to claim for indexation allowance, though the methods they use to do so will be somewhat different to those they may have used in previous years. As any inflation on a company asset will not be covered by an indexation allowance after January 2018, and indexation may soon be scrapped entirely (though no official announcement has been made as of yet), it appears that now is the most beneficial time to bank the relief on any long-term assets a company may hold.
Our dedicated specialists at MCC Accountants, who are some of the leading tax advisors in Salford and Manchester, are more than happy to assist you with a range of tax-based services, including Corporate tax planning. Call 0161 707 1500 or email [email protected] to speak to a member of our knowledgeable team, who will be happy to answer any questions you may have.