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HMRC internal manual

Capital Gains Manual

Compensation: assets damaged/destroyed: part of compensation applied

TCGA92/S23 (4) does not apply where only part of the compensation for the original asset is used to acquire the replacement asset. However, provided that the amount which is not used is less than the gain, a claim can be made under Section 23(5).

Under Section 23(5), the claimant is treated as if

  • the amount of the gain was reduced to the amount not used in acquiring the replacement asset (or, where the gain is not all chargeable, with a proportionate reduction in the chargeable gain)


  • the cost of the replacement asset is reduced by that reduction (or proportionate reduction).

On 6 April 1990 Mr S purchased a piece of jewellery for £20,000. In 1994 it was stolen and on 6 October 1994 he received £26,000 compensation from the insurance company.

The chargeable gain is

Indexation 20,000 x (say)  
202 4,040
Chargeable Gain 1,960

In February 1995 Mr S buys a replacement for £25,400 and claims under TCGA92/S23. Since he used only part of the £26,000 compensation to purchase the replacement asset, the claim has to be under Section 23(5) not 4).

The amount of the original chargeable gain is reduced to £600, which is the amount not used, £26,000 - £25,400.

The acquisition cost of the replacement asset is reduced by the amount by which the chargeable gain is reduced:

Acquisition cost of replacement   25,400
Chargeable gain on original 1,960  
Reduced to 600 1,360
Revised acquisition cost   24,040