Taxation of Chargeable Gains Act 1992 section 57

Receipts etc. which are not treated as disposals but affect relevant allowable expenditure

Section 57 deals with how the indexation allowance is adjusted when a small capital receipt reduces the base cost of an asset but is not itself treated as a disposal for capital gains purposes.

• Where a small capital receipt is not treated as a part-disposal, it is instead deducted from the allowable expenditure used to calculate any gain or loss on a later disposal of the asset.
• When computing the indexation allowance on that later disposal, the reduction in expenditure is initially ignored, so the indexed rise is first calculated on the full original expenditure.
• A deduction is then made from that indexed rise, equal to the indexation that would have accrued on a notional item of expenditure matching the amount of the reduction, treated as incurred on the date the receipt arose.
• The net effect is that indexation on the portion of expenditure covered by the small receipt only runs up to the date of the receipt, not to the date of the eventual disposal.