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HMRC internal manual

# Indexation: example: capital allowances equal the unadjusted loss

A Ltd acquires in March 1987 a printing press costing £100,000.

It is sold in March 1993 for £27,000.

The capital allowances, after deducting the balancing charge, amount to £73,000.

The computation, if TCGA92/S41 did not apply, would be:

 £ Disposal proceeds 27,000 LESS Cost 100,000 Unindexed loss (73,000) LESS Indexation 100,000 x 0.385 38,505 ALLOWABLE LOSS (113,505)

The computation under TCGA92/S41 is as follows:

 £ Disposal proceeds 27,000 LESS Cost 100,000 Deduct capital allowances 73,000 27,000 Unindexed loss LESS Indexation 27,000 x 0.385 10,395 ALLOWABLE LOSS (10,395)

## Capital allowances less than adjusted loss

B Ltd acquires in March 1987 land costing £200,000 of which £150,000 is attributable to an industrial building.

The land is sold in March 1993 for £160,000, of which £120,000 is attributable to the industrial building.

Clearly there is an allowable loss if TCGA92/S41 is disregarded.

Net capital allowances, after deducting the balancing charge, amount to £30,000.

It can be seen that part of the loss is attributable to a fall in the value of the land. Note that the land and building are a single asset for these purposes.

 £ Disposal proceeds 160,000 LESS Cost 200,000 Deduct capital allowances 30,000 170,000 Unindexed loss 10,000 LESS Indexation 170,000 x 0.385 65,450 ALLOWABLE LOSS (75,450)

### Capital allowances greater than adjusted loss

C Ltd acquires in March 1987 land costing £200,000 of which £150,000 is attributable to an industrial building.

The land is sold in March 1993 for £180,000, of which £100,000 is attributable to the industrial building.

Clearly there is a loss before applying TCGA92/S41.

Net capital allowances, after deducting the balancing charge, amount to £50,000.

It can be seen that this is a variation of the previous example, but here there is actually a gain on the site value.

 £ Disposal proceeds 180,000 LESS Cost 200,000 Deduct capital allowances 50,000 150,000 Unindexed gain 30,000 LESS Indexation 150,000 x 0.385 57,750 ALLOWABLE LOSS (27,750)

The full amount of capital allowances is deducted from the allowable expenditure. You do not deduct merely the amount, £20,000, needed to reduce the unindexed loss to nil.