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HMRC internal manual

Capital Gains Manual

Debts: satisfied by acquisition of property: example


  • A manufacturer runs into financial difficulties and is unable to pay its supplier for the materials it has used. The debt outstanding is £80,000 and the supplier accepts a freehold property in satisfaction of the debt in June 1990. The market value of the property at the time is agreed to be £70,000.
  • The manufacturer is treated as disposing of the freehold property for £70,000 and any chargeable gain or loss is computed by reference to that figure.
  • The supplier subsequently sells the property in September 1992. The sale proceeds are

(A) £65,000 or

(B) £95,000. Indexation from the date of acquisition of the property to the date of disposal is 10 per cent.


Disposal proceeds 65,000
less Cost 70,000
Unindexed loss (5,000)
less Indexation 7,000
Allowable loss  (12,000) 

No adjustment is required because the disposal gives rise to a loss. (Indexation only enhances losses from disposals made before 30 November 1993.)


Disposal proceeds 95,000
less Cost 70,000
Unindexed gain 25,000 
less Indexation 7,000
Chargeable gain  £18,000 

Because there is a gain you must consider the restriction by TCGA92/S251 (3).

Recompute the gain using the value of the debt rather than the market value of the property as the acquisition cost.

Disposal proceeds 95,000
less Cost 80,000
Unindexed gain 15,000 
less Indexation 8,000
Chargeable gain  £7,000*

The assessable gain is £7,000.

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.