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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.