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indexation allowance


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When a capital gain is made on the disposal of an asset by a company, the amount of the gain (and therefore the company's liability to tax) is adjusted for inflation by adding indexation allowance to the base cost of the asset. Indexation allowance is calculated by comparing the retail prices index for the month of disposal with the retail prices index for the month of acquisition.

Indexation allowance is not applied when computing the gain made by an individual. Instead, an individual pays capital gains tax at a rate of 18%.

Subjects: Law.


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