Taxation of Chargeable Gains Act 1992 section 114

Consideration for options: corporation tax

Section 114 deals with the indexation of the cost of acquiring an option to buy shares, where the option was acquired some time before the shares themselves were purchased, for corporation tax purposes.

• Where a company exercises an option to acquire shares, the cost of the option is merged with the cost of the shares in both the qualifying expenditure pool and the indexed expenditure pool.
• An additional indexation uplift on the option cost is added to the indexed pool, calculated using the formula (RO − RA) / RA, where RO is the retail prices index for December 2017 and RA is the retail prices index for the month the option was acquired (or March 1982 if later).
• Indexation is frozen at December 2017, so if the option was acquired after that date, no indexation uplift arises.
• The indexed rise is also nil if the retail prices index for December 2017 is equal to or less than the retail prices index for the month the option was acquired.