CG12965 | Capital sums derived from assets: interaction of s22 and s24 TCGA92

A capital sum, such as compensation or a sum paid under an insurance policy, to which s22(1) TCGA92 applies may be received in circumstances where the asset from which it was derived has been lost, destroyed or has otherwise ceased to exist.

S24(1) TCGA92 treats the entire loss, destruction, dissipation or extinction of an asset as an occasion of a disposal of the asset, see CG13120+.

Where a capital sum is received as a result of the loss or destruction of an asset the question arises as to whether there are disposals under both s22(1) TCGA92 and s24(1) TCGA92, or whether one of those disposals takes precedence over the other.

The relationship between s24(1) TCGA92 and s22(1) TCGA92 was considered in three cases involving options, Golding (Inspector of Taxes) v Kaufman (58 TC 296), Strange v Openshaw (57 TC 544) and Powlson v Welbeck Securities Ltd (60 TC 269) (at 283 and 290 to 291). The principle which emerged from these cases is that where a capital sum is derived from an asset which has been lost, destroyed, abandoned (‘abandonment’ implying other than voluntarily disposal) or has otherwise ceased to exist, s22(1) TCGA92 takes precedence over s24(1) TCGA92 so that there will be a single disposal. This follows from s24(1) TCGA92, which makes clear that that subsection is “subject to the provisions of this Act” and, in consequence, subject to s22(1) TCGA92.

This means that any allowable costs within s38(1)(a) and (b) TCGA92, see CG15150+, in respect of the asset can be deducted from the capital sum received in computing the gain or loss under s22(1) TCGA92.

In certain circumstances where a capital sum is applied in replacing an asset a claim may be made under s23(4) TCGA92 to treat the disposal as resulting in neither a gain nor a loss subject to the cost of the replacement asset being reduced by the chargeable gain that would otherwise have arisen, see CG15742+.