CG12945 - Capital sums derived from assets: s22 TCGA92: the charge to tax

Introduction and layout of guidance
Time of disposal
Reliefs and exemptions
Allowable costs
Example

Introduction and layout of guidance

S22 TCGA92 provides that there is:

“…..a disposal of assets by their owner where any capital sum is derived from assets notwithstanding that no asset is acquired by the person paying the capital sum…..”

CG12975 explains what is meant by the term ‘owner’.

CG12980 explains what is meant by the term ‘capital sum’.

CG12985 explains what is meant by the term ‘derived from assets’.

The words “notwithstanding that no asset is acquired” should be interpreted as meaning “whether or not an asset is acquired by the person paying the capital sum”. This follows from Marren v Ingles (54 TC 76), in which the wording of s22(1) TCGA92 was considered to have the effect of extension not of limitation.

S22(1)(a) - (d) TCGA92, see CG12948 - CG12955, brings certain categories of capital sums within the scope of the section. However, it is important to bear in mind that the receipt of a capital sum which is not within any of those categories may still be treated as an occasion of a deemed disposal if the general conditions of s22(1) TCGA92 set out above are satisfied.

If a series of capital sums is received each receipt is an occasion of a separate disposal.

CG12985+ provides guidance on identifying the asset from which the capital sum was derived.

CG12965 explains the interaction of s22(1) and s24(1) TCGA92 in situations where a capital sum is derived from an asset which has been totally lost, destroyed or has otherwise ceased to exist.

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Time of disposal

CG12960 explains the rules for determining the time of disposal.

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Reliefs and exemptions

Any exemptions or reliefs (e.g. roll-over relief under s155 TCGA92, or private residence relief under s222 TCGA92) that is available on a disposal or part disposal of the asset will be available on a deemed disposal within s22(1) TCGA92 provided that the relevant statutory conditions are satisfied.

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Allowable costs

The word ‘disposal’ includes occasions when a part disposal or a disposal of an interest in an asset is deemed to have taken place, see CG12700+. Therefore, the part disposal formula in s42(2) TCGA92 may have to be applied to determine any allowable costs within s38(1)(a) and (b) TCGA92, see CG15150+, that should be deducted in the CG computation on a deemed disposal within section 22(1).

The part disposal formula may apply, for example, where:

  • the asset from which the capital sum was derived is otherwise disposed of, see below, or
  • a series of capital sums are derived from an asset.

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Example

An asset is damaged in a fire and the owner receives a capital sum under a policy of insurance. The asset is then sold in its damaged condition for a fraction of its original value.

The part disposal formula in se42(2) TCGA92 should be applied to determine what proportion of the allowable costs is to be deducted in computing the gain arising under s22(1) TCGA92. The remainder of the allowable costs will be available to deduct in computing any gain or loss arising on the subsequent disposal of the asset in its damaged state.