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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Compensation: assets damaged/destroyed: `replacement'

The word ‘replacement’ can be interpreted reasonably. A claim in respect of a replacement asset which is of similar function and type to the original asset is within TCGA92/S23(4).

Mrs P acquired an asset in July 1988 for £20,000 and insured it for ‘replacement value’. The asset was destroyed in 1990. In September 1990, she received £25,000 under the insurance policy. The salvaged material had a residual scrap value of £500. The scrap was not taken by the insurance company. The costs incurred in settling the claim were £400. Mrs P immediately acquired a replacement asset for £27,500 and claims under TCGA92/S23(4).

Computation    
     
     
  £  
  £  
     
Compensation received   25,000
Scrap value   500
    25,500
Cost of original asset 20,000  
Indexation allowance 20,000 x    
0.212 4,240  
     
     
Expenses of disposal    
  400  
  24,640  
     
     
Gain    
    860
     
Cost of replacement asset    
    27,500
     
     
Deemed cost of replacement asset    
    26,640