CG17510 - 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 | - | 0 |
| 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.