PART IIIIncome Tax, Corporation Tax and Capital Gains Tax

CHAPTER IIICapital Gains

87Calculation of indexation allowance

1

The provisions of this section have effect for the purpose of computing the indexation allowance on a disposal to which section 86 above applies.

2

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 (3) and (4) below, by the formula (RD−RI)÷RImath where—

  • RD is the retail prices index for the month in which the disposal occurs; and

  • RI is the retail prices index for March 1982 or the month which is the twelfth month after that in which the expenditure was incurred, whichever is the later.

3

If, in relation to any item of expenditure.—

a

the month in which the expenditure was incurred is less than thirteen months before the month in which the disposal occurs, or

b

RD, as defined in subsection (2) above, is equal to or less than RI, as so defined,

the indexed rise in that item is nil.

4

If, in relation to any item of expenditure, the figure determined in accordance with the formula in subsection (2) above would, apart from this subsection, be a figure having more than three decimal places, it shall be rounded to the nearest third decimal place.

5

For the purposes of this section—

a

relevant allowable expenditure falling within paragraph

a

of subsection (1) of section 32 of the [1979 c. 14.] Capital Gains Tax Act 1979 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.