In the capital gains calculation, which deduction is applied last to arrive at the chargeable gain?

• A. Costs to sell
• B. Proceeds
• C. Indexation allowance
• D. Cost of the original asset

Answer: (C)

The last deduction is the indexation allowance. In calculating a chargeable gain, you first subtract the costs of disposal from the disposal proceeds, then subtract the cost of acquiring the asset (including any allowable enhancements) to get the gain before inflation. The indexation allowance then increases the cost base to reflect inflation, which reduces this gain. Because indexation is an inflation adjustment to the cost base, it’s applied after the other cost deductions, giving the final chargeable gain.