Please note that the below is just for reference, as indexation and taper relief were abolished in April 2008.
Here's where it used to get moderately complicated.
Taper relief was not a substitute for indexation in the sense that you could forget about indexation altogether. The indexation allowance was still available, but it only applied to shares bought before 5 April 1998. Taper relief took over responsibility for reducing gains after 6th April 1998.
This means that if you have shares that were bought before 5 April 1998 and you sold them after 6th April 1998 you used to be able to reduce your gain by using indexation and taper relief together.
Example
Shares bought during May 1991 for £2,000 are sold during March 2003 for £4,000.
| Disposal proceeds | 4,000 | |
| Base cost | (2,000) | |
| Indexation - 0.218 x 2000 | (436) | |
| Adjusted cost | (2,436) | (2,436) |
| Gain | 1564 | |
| Taper relief 5 years + 1 year at 5% = 85% | (1329.40) | (1329.40) |
| Taxable gain | £234.60 |
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