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HMRC internal manual

Capital Gains Manual

Capital sums derived from assets: interaction of sections 22 and 24 TCGA 1992

A capital sum, such as compensation or a sum paid under an insurance policy, to which section 22(1) TCGA 1992 applies may be received in circumstances where the asset from which it was derived has been lost, destroyed or has otherwise ceased to exist.

Section 24(1) TCGA 1992 treats the entire loss, destruction, dissipation or extinction of an asset as an occasion of a disposal of the asset, see CG13120+.

Where a capital sum is received as a result of the loss or destruction of an asset the question arises as to whether there are disposals under both sections 22(1) and 24(1), or whether one of those disposals takes precedence over the other.

The relationship between sections 24(1) and 22(1) was considered in three cases involving options, Golding (Inspector of Taxes) v Kaufman 58TC296, Strange v Openshaw 57TC544 and Powlson v Welbeck Securities Ltd, 60TC269 (at 283 and 290 to 291). The principle which emerged from these cases is that where a capital sum is derived from an asset which has been lost, destroyed, abandoned (‘abandonment’ implying other than voluntarily disposal) or has otherwise ceased to exist, section 22(1) takes precedence over section 24(1) so that there will be a single disposal. This follows from section 24(1), which makes clear that that subsection is “subject to the provisions of this Act” and, in consequence, subject to section 22(1).

This means that any allowable costs within section 38(1)(a) and (b) TCGA 1992, see CG15160+, in respect of the asset can be deducted from the capital sum received in computing the gain or loss under section 22(1).

In certain circumstances where a capital sum is applied in replacing an asset a claim may be made under section 23(4) TCGA 1992 to treat the disposal as resulting in neither a gain nor a loss subject to the cost of the replacement asset being reduced by the chargeable gain that would otherwise have arisen, see CG15742+.