Lord Templeman

My Lords,

Section 1 of the Capital Gains Tax Act 1979 provides, so far as material, that:

(1) Tax shall be charged ... in respect of capital gains, that is to say chargeable gains computed in accordance with this Act and accruing to a person on the disposal of assets.

In Chapter II of Part II of the Act, s. 28 provides as follows:

(1) The amount of the gains accruing on the disposal of assets shall be computed in accordance with this Chapter, and subject to the other provisions of this Act and ss. 86 and 87 of the Finance Act 1982 . (2) Every gain shall, except as otherwise expressly provided, be a chargeable gain. (3) Schedule 5 to this Act (which restricts the amount of chargeable gains accruing on the disposal of assets owned on 6 April 1965) shall have effect.

Mrs. Schofield acquired assets in 1952 and sold them in 1987 for 24315,800.After deduction of expenses the amount of the gain accruing on the disposal was 24314,088.

Section 86(1) of the Finance Act 1982 as amended provides that s. 86 will apply to any disposal of an asset which occurs on or after 6 April 1982. Section 86 applies to the disposal by Mrs. Schofield in 1987. Section 86(2) provides that:

In relation to a disposal to which this section applies -

(a) 'the unindexed gain ...' means the amount of the gain ... on the disposal computed in accordance with Chapter II of Part II of the Capital Gains Tax Act 1979 ...

The amount of the gain on the disposal made by Mrs. Schofield was 24314,088 and that is therefore the amount of her unindexed gain.

Section 86(4) made provision:

...for an allowance (... referred to as 'the indexation allowance') which, on a disposal to which this section applies, is to be set against the unindexed gain . . . so as to give the gain . . . for the purposes of the Capital Gains Tax Act 1979 as follows, -

(a) if there is an unindexed gain. the indexation allowance shall be deducted from the gain ...

The indexation allowance computed and agreed in the present case is the sum of 2432,640.Accordingly the sum of 2432,640 must be set against the unindexed gain of 24314,088 in order to give the gain for the purposes of the Act of 1979. Mrs. Schofield must be treated as if the gain on the disposal was not 24314,088 but 24311,448.Mrs. Schofield owned the relevant assets on 6 April 1965 so that by virtue of s. 28(3) of the Act the provisions of Schedule 5 must be applied.

By paragraph 11 of Schedule 5:

(2) On the disposal of assets by a person whose period of ownership began before 6 April 1965 only so much of any gain accruing on the disposal as is under this paragraph to be apportioned to the period beginning 6 April 1965 shall be a chargeable gain.

The sum of 24311,448 was the gain for the purposes of the Act of 1979 and it is that gain which must be apportioned.The amount apportioned to the period beginning with 6 April 1965 on that basis is agreed to be 2437,189, accordingly the sum of 2437,189 becomes the chargeable gain made on the disposition by Mrs. Schofield and capital gains tax is leviable on the basis of that chargeable gain.

On behalf of Mrs. Schofield it was argued that the gain of 24314,088 must be apportioned under Schedule 5. The part thus apportioned on that basis to the period beginning with 6 April 1965 is 2438,864.If the argument is right then paragraph 11 of Schedule 5 stipulates that it is the sum of 2438,864 which is the chargeable gain.Then according to the argument there must be deducted from the chargeable gain of 2438,864 the indexation allowance.That leaves just 2436,224 which Mrs. Schofield must bring into account in the computation of her capital gains tax liability.

My Lords, paragraph 11(2) of Schedule 5 provides that only the amount of any gain accruing on a disposal and apportioned to the period beginning 6 April 1965 shall be a chargeable gain.If the indexation allowance is deductible from the amount apportioned under paragraph 11(2) the allowance is deductible from a chargeable gai