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HMRC internal manual

Capital Gains Manual

Capital allowances: assets disposed of at a loss: example

TCGA92/S41(2) - example

Mr R acquires a tower crane for £200,000 on 6 April 2007.

The tower crane is disposed of for £50,000 on 5 April 2014.

Capital allowances of £165,000 were given. The capital allowances written down value was £35,000 at disposal so there was a balancing charge on disposal of £15,000.

Under TCGA92/S41(7), the capital allowances are treated as the difference between the expenditure incurred on the tower crane and the disposal value:

Capital allowances made - £200,000 - £50,000 = £150,000.

Section 41(2) restricts the loss by reducing the allowable expenditure:

    £
     
Disposal Proceeds      50,000
less Cost 200,000-150,000 (50,000)
Loss             (0)

The person making the disposal received total capital allowances of £150,000 and an allowable loss of £0, giving total relief of £150,000.  The asset reduced in value by £150,000 during the period of ownership.  The person making the disposal receives relief under the capital allowances code equal to the reduction in value of the asset.

 

Without section 41, the computation would be as follows:

    £
     
Disposal Proceeds        50,000
less Cost   (200,000)
Loss    (150,000)

The person making the disposal would receive capital allowances of £150,000 and an allowable loss of £150,000, giving total relief of £300,000.  The asset reduced in value by £150,000 during the period of ownership.  The person making the disposal would receive relief twice for the reduction in the value of the asset.

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