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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Capital allowances: part-disposals: example

 

X acquires land for £100,000 and builds an industrial building at a cost of £400,000 which qualifies for industrial buildings allowance. In 1992 X grants a 99-year lease over the property for a premium of £300,000. The residual value is £100,000.

The fraction of the expenditure which is allowable as a deduction in the computation of the loss accruing on the part-disposal is, see CG15410+
 

 

300000 = 3      
         
300,000 + 100,000 4      
The computation of the loss is       £
  Disposal proceeds     300000
Less Land 3    
    4x 100,000 75000  
  Buildings 3    
    4x 400,000 300000 375000
    Unindexed loss   (75000)
Less Indexation (say) 75,000 x 0.5 37500  
    300,000 x 0.4 120000 157500
    Loss   (232,500)

 

As the computation results in a loss we must restrict the expenditure on the industrial building by the allowances which have been or may be given. In this case there is no balancing charge and so the allowable expenditure on the building is wholly restricted. The revised computation is
 

 

        £
         
  Disposal proceeds     300000
Less Land   75000  
  Buildings (300,000 - 300,000)   75000
  Unindexed gain     225000
Less Indexation 75,000 x 0.5   37500
    Gain   187,500

 

TCGA92/S41 cannot turn a loss into a gain so the loss is restricted to NIL.

On a subsequent disposal we will need to know the exact amount of capital allowances (CA) used up in restricting the loss to nil. The only changes to the computation are
 

 

  • the CA restriction itself, plus
  • the indexation allowance in respect of the CA restriction;

and together these must equal £232,500. This can be expressed as
 

CA + (CA x 0.4)  = 232,500
   
CA x 1.4  = 232,500
CA  = 166,071

 

If the disposal had been in January 1994 instead of 1992 the loss would have been £75,000 instead of £232,500 because no indexation allowance would have been due, see CG17700. In that case the amount of capital allowances used up in restricting the loss to nil is £75,000.