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HMRC internal manual

Capital Gains Manual

Compensation: wasting assets

Until the amendments introduced by FA96 TCGA92/S23 (6) prevented relief under Section 23 from applying to capital sums received in respect of wasting assets where compensation was received before 6 April 1996. Wasting assets are defined by TCGA92/S44, see CG76700.

This rule was modified by ESC/D1 for leases of land with 50 years or less to run. The concession allowed a relief similar to that provided by Section 23(1) where insurance receipts were applied in restoring damage to the property, see CG70772.

FA96/SCH39/PARA3 & TCGA92/S23 (8)

ESC/D1 was legislated by FA96/SCH39/PARA3 as TCGA92/S23 (8) to apply to capital sums received on or after 6 April 1996. But the statutory relief does not only apply to land and is of much wider application than the original concession. Relief is now available in the following circumstances where the capital sum is derived from a wasting asset.

  • Where Section 23(1) applies and the capital sum is wholly applied in restoring the asset, see CG15700, but not where

    • a small part of the capital sum is not so applied,

see CG15703, or

* the capital sum is itself small, see CG15700.
  • Where either Section 23(4), see CG15740+, or Section 23(6), see CG15742, apply.

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TCGA92/S23 (8) (b)

The cost of a wasting asset is written off over its predictable life, see CG76772+. Therefore, when a capital sum is derived from a wasting asset, the deductible cost of that asset is likely to be less than its original cost. It is important to ensure that relief is not given for capital sums that exceed the deductible cost. For this reason Section 23(8)(b) provides that when relief is given under Section 23(1) or (3) for expenditure in restoring a wasting asset, the deduction is made from the wasted cost of the asset and not from the original cost.