Taxation of Chargeable Gains Act 1992 section 53

The indexation allowance and interpretative provisions

Section 53 establishes the indexation allowance, which adjusts chargeable gains for inflation by reference to the retail prices index, and defines the key terms used in its calculation.

• The indexation allowance reduces an unindexed gain to arrive at the chargeable gain, but it can only reduce a gain to nil — it cannot create or increase a loss.
• The allowance is calculated by applying the percentage increase in the retail prices index to the relevant allowable expenditure, being the acquisition cost and enhancement expenditure used in computing the gain.
• Indexation is frozen at December 2017 for corporation tax purposes, and was withdrawn entirely for individuals and other non-corporate taxpayers from 6 April 2008.
• The section does not apply where the disposal already produces a loss before any indexation adjustment, and its operation is subject to various special rules covering part disposals, no gain/no loss transfers, share pooling, and certain other circumstances.