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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Indexation: example: capital allowances exceed value on 31/3/82

F Ltd purchased a ship in 1975 for £2,000,000.

The market value on 31 March 1982 was £1,000,000.

It was sold in March 1993 for £500,000.

The net capital allowances were £1,500.000.

In this case the capital allowances exceed the market value on 31 March 1982. However the market value can only be reduced or eliminated. It cannot become negative expenditure.

      £
       
  Disposal proceeds   500,000
LESS Market value 31.3.82 1,000,000  
  Deduct capital allowances (restricted) 1,000,000 NIL
  Unindexed gain   500,000
LESS Indexation    
  Cost 2,000,000  
  Capital allowances 1,500,000  
    0.753 x 500,000 376,500
  INDEXED GAIN   123,500

As TCGA92/S41 cannot give rise to a gain, but only eliminate a loss, the loss is nil, and there is no gain.