54 Calculation of indexation allowance.U.K.
(1)Subject to any provision to the contrary, the indexation allowance is the aggregate of the indexed rise in each item of relevant allowable expenditure; and, in relation to any such item of expenditure, the indexed rise is a sum produced by multiplying the amount of that item by a figure expressed as a decimal and determined, subject to subsections (2) and (3) below, by the formula—
where—
RD is the retail prices index for [F1the relevant month]; and
RI is the retail prices index for March 1982 or the month in which the expenditure was incurred, whichever is the later.
[F2(1A)In subsection (1) above—
(a)the references to an item of relevant allowable expenditure shall not, except for the purposes of corporation tax, include any item of expenditure incurred on or after 1st April 1998; and
(b)the reference to the relevant month is a reference—
(i)where that subsection has effect for the purposes of capital gains tax, to April 1998; and
(ii)where that subsection has effect for the purposes of corporation tax, to the month in which the disposal occurs.]
(2)If, in relation to any item of expenditure—
(a)the expenditure is attributable to the acquisition of relevant securities, within the meaning of section 108, which are disposed of within the period of 10 days beginning on the day on which the expenditure was incurred, or
(b)RD, as defined in subsection (1) above, is equal to or less than RI, as so defined,
the indexed rise in that item is nil.
(3)If, in relation to any item of expenditure, the figure determined in accordance with the formula in subsection (1) above would, apart from this subsection, be a figure having more than 3 decimal places, it shall be rounded to the nearest third decimal place.
(4)For the purposes of this section—
(a)relevant allowable expenditure falling within paragraph (a) of subsection (1) of section 38 shall be assumed to have been incurred at the time when the asset in question was acquired or provided; and
(b)relevant allowable expenditure falling within paragraph (b) of that subsection shall be assumed to have been incurred at the time when that expenditure became due and payable.
Textual Amendments
F1Words in s. 54(1) substituted (with effect in accordance with s. 122(6)(7) of the amending Act) by Finance Act 1998 (c. 36), s. 122(2)
F2S. 54(1A) inserted (with effect in accordance with s. 122(6)(7) of the amending Act) by Finance Act 1998 (c. 36), s. 122(3)