What is Indexation Allowance? UK Definition 2026/27
Quick Answer
Historical CGT relief that adjusted for inflation - now abolished.
Definition of Indexation Allowance
Indexation Allowance was a Capital Gains Tax relief that increased the base cost of an asset in line with inflation (RPI). It was abolished for individuals in 2008 but continued for companies until December 2017. Assets held before abolition retain some frozen indexation benefit. It prevented taxpayers paying CGT on purely inflationary gains.
Indexation Allowance — Key Facts for 2026/27
| Abolished (individuals) | April 2008 |
| Abolished (companies) | December 2017 |
| Frozen indexation | Still available to Dec 2017 |
| Based on | RPI inflation index |
How Indexation Allowance Works — Example
- 1Asset bought March 1990: £100,000
- 2Sold December 2017: £500,000
- 3Indexation factor: 1.474
- 4Indexed cost: £247,400
- 5Chargeable gain: £252,600 (not £400,000)
How Indexation Allowance Affects Your Tax
Indexation Allowance reduced CGT on long-held assets significantly. Its abolition means more gains are now taxable. Companies disposing of pre-2018 assets should calculate frozen indexation to reduce gains.
Official HMRC Guidance on Indexation Allowance
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Calculating chargeable gainsFrequently Asked Questions about Indexation Allowance
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.