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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Compensation: destruction of buildings

Where an asset has been entirely `lost or destroyed’, then that is treated as a deemed disposal of the asset, TCGA92/S24 (1), see CG13120.

Where the value of an asset has become `negligible’, then that is treated as a deemed disposal of the asset, TCGA92/S24 (2), see CG13120+.

Where, however, there are buildings or structures on land, under general law, the asset is actually the underlying land itself. As this land can never be entirely destroyed and is unlikely to become of negligible value, the building or structure would be outside Section 24(1) or (2).

To overcome this, TCGA92/S24 (3) allows you to treat a building or structure as an asset which is separate and distinct from the underlying land on which it stands, thus allowing claims under either Section 24(1) or (2).

However, when there is a deemed disposal of a building or structure under either Section 24(1) or (2), the claimant is also treated as though they disposed of and immediately reacquired the site, see CG15773, of the building or structure. This deemed disposal and reacquisition are treated as taking place at the market value, TCGA92/S272, of the site at the date of the Section 24(1) or (2) deemed disposal.

As a result, when a claim is made under Section 24(1) or (2), the loss on the deemed disposal of the building or structure will reflect both the fall in value of the building or structure and the change in value of the underlying land. If the value of the land has increased, then there will be a gain on its deemed disposal which will reduce the amount of the loss on the deemed disposal of the building or structure.