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HMRC internal manual

Capital Gains Manual

Leases: insurance receipts: short leases

TCGA92/S23 (8)

S23(8) provides that a capital sum received by a lessee under a policy of insurance should not be treated as a part-disposal of the lease if all the following conditions are satisfied:

  • the property is held on a short lease, see CG70752;
  • the lessee receives a sum under an insurance policy in respect of damage to the property;
  • the terms of the lease oblige the lessee to make good the damage to the property; and
  • that sum is used by the lessee to make good the damage to the property.

This section was introduced by Finance Act 1996 to apply to capital sums received on or after 6 April 1996, see CG15725 for further information.

If the insurance recovery is not wholly used in making good the damage to the property, only the net amount remaining after deducting the cost of the repairs should be treated as a capital sum derived from the lease.