Finance Act 1982

87 Calculation 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) ÷ RI 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.