Taxation of Chargeable Gains Act 1992 section 110

Indexation for section 104 holdings for corporation tax

Section 110 sets out how indexation allowance is calculated for section 104 pooled shareholdings held by companies within the corporation tax regime, using a dual-pool system of qualifying expenditure and indexed expenditure.

• A section 104 holding maintains two parallel pools: a qualifying expenditure pool (the actual allowable costs) and an indexed pool (qualifying expenditure plus cumulative indexation allowance), with the indexed pool frozen at the Retail Prices Index for December 2017
• On a part disposal, both pools are apportioned in the same ratio, and the indexation allowance is the excess of the apportioned indexed pool over the apportioned qualifying expenditure; on a disposal of the whole holding, the indexation allowance is simply the indexed pool minus the qualifying expenditure
• The indexed pool is updated each time an operative event occurs — that is, any event that increases or decreases the qualifying expenditure — by applying the formula (RE − RL) ÷ RL, where RE is the RPI for December 2017 and RL is the RPI for the month of the previous operative event
• Where assets are transferred into a section 104 holding on a no-gain/no-loss basis, the transferor's indexation allowance is not used to inflate the deemed consideration but is instead added directly to the indexed pool of the person receiving the shares