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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Compensation: assets damaged/destroyed: meaning of `small'

In considering whether the claim satisfies either (b) or (c) in CG15700, you should regard`small’ as meaning the same as in TCGA92/S122, see CG57836.

Where a capital sum is received in respect of damage to an asset which itself forms part of a larger unit, you apply (c) in CG15700 to the smallest unit which could reasonably be sold separately. For example, if a cottage is damaged, the unit is the cottage and not the estate on which it stands.

Mr B buys an asset for 10,000 and insures. When its value is 12,000, it is damaged by fire. Mr B receives 4,000 compensation and spends all of this on restoring the asset. He

claims under TCGA92/S23 (1).

As all the compensation has been used to restore the asset, Section 23(1) applies and the receipt is deducted from the acquisition cost of the asset. It is not treated as a part-disposal.

    £
     
  Cost of asset 10,000
Deduct compensation receipt 4,000
    6,000
Add expenditure on reinstatement 4,000
  Adjusted cost 10,000

Mr B again buys an asset for £10,000 and insures it. When its value is £12,000, it is damaged by fire. He receives compensation of 4,000 but this time he only spends £3,900 on restoration.

£100 of the compensation has not been used to restore the asset. This does not exceed 5% of the total capital sum received (4,000) and so TCGA92/S23 (1) still applies. The receipt can therefore be deducted from the acquisition cost.

    £
     
  Cost of asset 10,000
Deduct compensation receipt 4,000
    6,000
Add expenditure on reinstatement 3,900
  Adjusted cost 9,900