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HMRC internal manual

Capital Gains Manual

Capital allowances and renewals allowance: meaning

TCGA92/S41(4) & (5)

“Capital allowance” and “renewals allowance” have the meanings given by TCGA92/S41(4) & (5) for the purposes of TCGA92/PART2/CHAPT3 (Computation of Gains: General Provisions) only.

Section 41(4) - Capital allowances

Section 41(4) lists the allowances and deductions that are included as capital allowances:

  • any allowance under the Capital Allowances Act (see the Capital Allowances manual CA10020 onwards),
  • any deduction under ITTOIA05/S315 or CTA09/S254 (expenditure on sea walls) (see the Property Income Manual PIM2082), and
  • any deduction in computing profits allowable under ITTOIA05/S170 or CTA09/S147 (cemeteries) (see the Business Income Manual BIM52500 onwards).

When considering previous years you need to consider the relevant legislation in force at that time.

Section 41(5) - Renewals allowance

A renewals allowance is a deduction in computing the profits of a trade, profession or vocation for the purpose of income tax.  The deduction is calculated by reference to the cost of acquiring a new asset in replacement of another asset, section 41(5).  Further guidance is available regarding the meaning of renewals allowance in the Business Income Manual at BIM46960 onwards.

When a renewals allowance is granted on the acquisition of a new asset, the allowance should be treated as if it was granted against the expenditure incurred on the old asset.