Autumn Budget: Indexation allowance for capital gains abolished

Chancellor Philip Hammond has announced the indexation allowance for companies’ capital gains will be abolished to bring the corporate tax system in line with personal capital gains tax.

The indexation allowance takes inflation into account when calculating the chargeable gains of companies. The allowance will be frozen until January 2018.

“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,” Hammond said in today’s Autumn Budget. “I will therefore freeze this allowance so that companies receive relief for inflation up to January 2018, but not thereafter.”

“Our long-term phased reduction of Corporation Tax has generated investment and jobs, and raised £20 billion extra for our public services,” Hammond said. “We are committed to maintaining Britain’s competitive Corporation Tax rates.”

Hammond ruled out reducing the VAT registration threshold, which he admitted is “by far the highest in the OECD” at £85,000.

In report for the Government, the Office of Tax Simplification said the high threshold “distorts competition and disincentivises business growth”. However, Hammond argued that it is beneficial to small businesses that can avoid paying it.

“I am not minded to reduce the threshold,” Hammond said. “But I will consult on whether its design could better incentivise growth. And in the meantime we will maintain it at its current level of £85,000 for the next two years.”

In a bid to boost businesses, Hammond announced the planned switch from RPI to CPI will be brought forward by two years, to April 2018, which he anticipates will be worth £2.3bn to businesses over the next five years.

In the 2016 Budget then Chancellor George Osborne announced the corporation tax main rate would be cut to 17 per cent by 2020.