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TCGA92/S41(2) - example

Mr R acquires a tower crane for 拢200,000 on 6 April 2007.

The tower crane is disposed of for 拢50,000 on 5 April 2014.

Capital allowances of 拢165,000 were given. The capital allowances written down value was 拢35,000 at disposal so there was a balancing charge on disposal of 拢15,000.

Under TCGA92/S41(7), the capital allowances are treated as the difference between the expenditure incurred on the tower crane and the disposal value:

Capital allowances made - 拢200,000 - 拢50,000 = 拢150,000.

Section 41(2) restricts the loss by reducing the allowable expenditure:

Disposal Proceeds 拢50,000

Less cost 200,000-150,000 拢50,000

Loss (0)

The person making the disposal received total capital allowances of 拢150,000 and an allowable loss of 拢0, giving total relief of 拢150,000. The asset reduced in value by 拢150,000 during the period of ownership. The person making the disposal receives relief under the capital allowances code equal to the reduction in value of the asset.

Without section 41, the computation would be as follows:

Disposal Proceeds 拢50,000

Less cost 200,000-150,000 (拢200,000)

Loss (150,000)

The person making the disposal would receive capital allowances of 拢150,000 and an allowable loss of 拢150,000, giving total relief of 拢300,000. The asset reduced in value by 拢150,000 during the period of ownership. The person making the disposal would receive relief twice for the reduction in the value of the asset.