Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
, see all updates

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.