CG17601 - Indexation: disposals 4/85 to 3/88: example: asset held at 31/3/82
X Ltd acquired a ship in March 1975 for £2,000,000.
Its value on 31 March 1982 was £1,000,000.
The ship was sold in March 1988 for £500,000.
The net capital allowances were £1,500.000. Should a claim be made under FA85/S68 (5)?
If a claim is not made the computation is as follows.
| - | - | - | £ |
|---|---|---|---|
| - | Disposal proceeds | - | 500,000 |
| Less | Cost | 2,000,000 | - |
| - | Deduct capital allowance | 1,500,000 | 500,000 |
| - | Unindexed loss | - | 0 |
| Less | Indexation | 500,000 x 0.310 | 165,000 |
| - | ALLOWABLE LOSS | - | (165,000) |
If a claim is made the computation is as follows:
| - | - | - | £ |
|---|---|---|---|
| - | Disposal proceeds | - | 500,000 |
| Less | Cost | 2,000,000 | - |
| - | Deduct capital allowances | 1,500,000 | 500,000 |
| - | Unindexed loss | - | 0 |
| Less | Indexation (UNRESTRICTED) | 1,000,000 x 0.310 | 310,000 |
| - | ALLOWABLE LOSS | - | (310,000) |
Therefore a claim is advantageous even though the value on 31 March 1982 was lower than original cost, because as explained in CG17450 under these provisions the capital allowances are not deductible from the value on 31 March 1982. They are, on the other hand, deductible from the original cost.
For disposals on or after 6 April 1988 capital allowances are deductible for both rebasing and indexation purposes, TCGA92/SCH3/PARA3 and TCGA92/S55 (3).