Part II General Provisions relating to computation of gains and acquisitions and disposals of assets
Chapter III Computation of gains: General provisions
Allowable deductions
C1C241 Restriction of losses by reference to capital allowances and renewals allowances.
1
Section 39 shall not require the exclusion from the sums allowable as a deduction in the computation of the gain of any expenditure as being expenditure in respect of which a capital allowance or renewals allowance is made, but the amount of any losses accruing on the disposal of an asset shall be restricted by reference to capital allowances and renewals allowances as follows.
2
In the computation of the amount of a loss accruing to the person making the disposal, there shall be excluded from the sums allowable as a deduction any expenditure to the extent to which any capital allowance or renewals allowance has been or may be made in respect of it.
3
If the person making the disposal acquired the asset—
F16a
by a transfer by way of sale in relation to which an election under section 569 of the Capital Allowances Act was made, or
b
by a transfer to which section 268 of that Act applies,
(being enactments under which a transfer is treated for the purposes of capital allowances as being made at written down value), the preceding provisions of this section shall apply as if any capital allowance made to the transferor in respect of the asset had (except so far as any loss to the transferor was restricted under those provisions) been made to the person making the disposal (that is the transferee); and where the transferor acquired the asset by such a transfer, capital allowances which by virtue of this subsection can be taken into account in relation to the transferor shall also be taken into account in relation to the transferee (that is the person making the disposal), and so on for any series of transfers before the disposal.
4
In this section “capital allowance” means—
F6a
any allowance under the Capital Allowances Act,
F19zaa
any deduction allowable in respect of capital expenditure in calculating profits on the cash basis (see sections 33A and 307B of ITTOIA 2005),
F14aa
any deduction under section 311A of ITTOIA 2005 or section 250A of CTA 2009 (replacement domestic items relief),
b
F24A
But references in this section to a capital allowance do not include references to an allowance under Part 2A of CAA 2001 (structures and buildings allowances).
5
In this section “renewals allowance” means a deduction allowable in computing the F3profits of a trade, profession or vocation for the purpose of income tax by reference to the cost of acquiring an asset for the purposes of the trade, profession or vocation in replacement of another asset, and for the purposes of this Chapter a renewals allowance shall be regarded as a deduction allowable in respect of the expenditure incurred on the asset which is being replaced.
6
The amount of capital allowances to be taken into account under this section in relation to a disposal include any allowances falling to be made by reference to the event which is the disposal, and there shall be deducted from the amount of the allowances the amount of any balancing charge to which effect has been or is to be given by reference to the event which is the disposal, or any earlier event.
F176A
Where—
a
capital allowances have been made or may be made in respect of expenditure, and
b
the capital allowances include a deduction mentioned in subsection (4)(zaa),
the capital allowances to be taken into account under this section are to be regarded as equal to the total amount of expenditure which has qualified for capital allowances less any balancing charge to which the person making the disposal is liable under the Capital Allowances Act.
7
Where the disposal is of F7plant or machinery in relation to expenditure on which allowances or charges have been made under F8Part 2 of the Capital Allowances Act, F9and subsection (6A) does not apply, and neither Chapter 15 (assets provided or used only partly for qualifying activity) nor Chapter 16 (partial depreciation subsidies) of that Part applies, the capital allowances to be taken into account under this section are to be regarded as equal to the difference between the F1qualifying expenditure incurred, or treated as incurred, under that Part on the provision of the F7plant or machinery by the person making the disposal and the disposal value required to be brought into account in respect of the F7plant or machinery.
C3F138
Where there is a disposal of an asset acquired in circumstances in which—
a
section 140A applies, or
b
section 171 applies or would apply but for subsection (2) of that section,
this section has effect in relation to capital allowances made to the person from which it was acquired (so far as not taken into account in relation to a disposal of the asset by that person), and so on as respects previous transfers of the asset in such circumstances.
This does not affect the consideration for which an asset is deemed under section 140A or 171 to be acquired.
F109
In this section—
a
in relation to a trade, profession or vocation, references to calculating profits on the cash basis are to F20be construed in accordance with Part 2 of ITTOIA 2005 (see section 24A of that Act), and
b
in relation to a property business, references to calculating profits on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis).
10
In this section—
“capital expenditure” means expenditure of a capital nature incurred on, or in connection with, the creation, construction, acquisition, alteration or disposal of an asset, and
“property business” means a UK property business or an overseas property business within the meaning of Part 3 of ITTOIA 2005 (see sections 264 and 265 of that Act).