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HMRC internal manual

Capital Gains Manual

Dwellings subject to ATED: how ATED-related gains/losses are charged/relieved - restriction on losses

Special rules apply in some circumstances both to create an ATED-related loss and determine the amount of that loss.

The rules apply where—

  • a disposal meets conditions A to C for it to be a relevant high value disposal (see CG73616),
  • but the disposal does not meet condition D, because consideration for the disposal is less than the ‘threshold amount’ for that disposal, and
  • the expenditure allowable as deductions in computing the gain or loss on disposal exceed that threshold amount.

Although the interest disposed of may have been within the scope of ATED, without the special rules there would be no ATED -related loss, because condition D is not met. The rules ensure that an ATED-related loss does accrue, but restricts the amount of that loss. In these circumstances TCGA92/S2E treats the disposal as if it were a relevant high value disposal and the special computational rules in Schedule 4ZZA (see CG73625+) for computing ATED-related and non ATED-related losses can apply.

However, the ATED-related loss computed under Schedule 4ZZA is then restricted to the amount which it would have been if the consideration for the disposal had been £1 more than the threshold amount and the amount of the restriction reverts to being a non ATED-related loss.

Example

The consideration for a disposal is £1.6 million and threshold amount for that disposal is £2 million. The cost of acquisition and other allowable expenditure is £2.2 million, giving rise to a ‘gross loss’ on the disposal (before adjustment) of £0.6 million.

Conditions A to C for it to be a relevant high value disposal are met, but condition D is not because the consideration is less than the threshold amount. Section 2E treats the disposal as a relevant high value disposal.

If the consideration for the disposal were £1 more than the threshold amount the loss on the disposal would have been £199,999 (£2,200,000 - £2,000,001).

If the whole of the gross loss on the disposal (£0.6 million) were ATED-related, the allowable loss would be restricted to £199,999.

If, say, only 25% of the gross loss (£150,000) were ATED-related, the actual ATED-related allowable loss would be restricted by reference to the same fraction multiplied by the loss computed using the deemed disposal consideration. That is, the ATED-related allowable loss would be restricted to 25% of £199,999 = £50,000. The amount which is excluded from being an ATED-related loss (£100,000 in the example) is a non ATED-related loss and may be allowed as such. The ‘gross loss’ that is not ATED-related (£450,000) is not affected by the restriction of the ATED-related loss.