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HMRC internal manual

Enquiry Manual

Recalculating Profits: Private Side - Capital Statements: Profits or Losses on Capital Sales

Where any property, investments or personal possessions which were shown at cost at the beginning of the year, are sold, the closing value of assets will reflect the reduced cost. The profit on disposal should be brought into the computation as income. Any profit will be reflected by the difference between the proceeds and the reduction in capital worth. A loss will have been a paper loss but must be brought in as an expense to compensate for the reduction in assets by the full cost price.

If the cost of the asset was not included in the opening value because it was held before the enquiry period, the full sale proceeds should be brought into the computation. Where an asset is bought and sold in the same year, then only the profit or loss needs to be included as non-taxable income or an expense. You should consider whether any Capital Gains Tax liability arises on any disposal.

The sale of an asset, especially at a profit, can be a useful way of explaining an apparent deficiency of income. You should therefore check that a sale did actually take place at the value suggested.