CG17510 | Indexation: example: capital allowances equal the unadjusted loss

From HM Revenue & Customs · Capital Gains Manual

A Ltd acquires in March 1987 a printing press costing £100,000.

It is sold in March 1993 for £27,000.

The capital allowances, after deducting the balancing charge, amount to £73,000.

The computation, if TCGA92/S41 did not apply, would be:

---£
-Disposal proceeds-27,000
LessCost-100,000
-Unindexed loss-(73,000)
LessIndexation100,000 x 0.38538,505
-ALLOWABLE LOSS-(113,505)

The computation under TCGA92/S41 is as follows:

---£
-Disposal proceeds-27,000
LessCost-100,000
-Deduct capital allowances73,00027,000
-Unindexed loss-0
LessIndexation27,000 x 0.38510,395
-ALLOWABLE LOSS-(10,395)

Capital allowances less than adjusted loss

B Ltd acquires in March 1987 land costing £200,000 of which £150,000 is attributable to an industrial building.

The land is sold in March 1993 for £160,000, of which £120,000 is attributable to the industrial building.

Clearly there is an allowable loss if TCGA92/S41 is disregarded.

Net capital allowances, after deducting the balancing charge, amount to £30,000.

It can be seen that part of the loss is attributable to a fall in the value of the land. Note that the land and building are a single asset for these purposes.

---£
-Disposal proceeds-160,000
LessCost200,000-
-Deduct capital allowances30,000170,000
-Unindexed loss-10,000
LessIndexation170,000 x 0.38565,450
-ALLOWABLE LOSS-(75,450)

Capital allowances greater than adjusted loss

C Ltd acquires in March 1987 land costing £200,000 of which £150,000 is attributable to an industrial building.

The land is sold in March 1993 for £180,000, of which £100,000 is attributable to the industrial building.

Clearly there is a loss before applying TCGA92/S41.

Net capital allowances, after deducting the balancing charge, amount to £50,000.

It can be seen that this is a variation of the previous example, but here there is actually a gain on the site value.

---£
-Disposal proceeds-180,000
LessCost200,000-
-Deduct capital allowances50,000150,000
-Unindexed gain-30,000
LessIndexation150,000 x 0.38557,750
-ALLOWABLE LOSS-(27,750)

The full amount of capital allowances is deducted from the allowable expenditure. You do not deduct merely the amount, £20,000, needed to reduce the unindexed loss to nil.