CG15292 - Expenditure: miscellaneous points

Wasting assets

In general terms, a wasting asset is one whose useful life is limited so that over a period of time it gradually becomes either valueless or worth only scrap value. Where such an asset is disposed of after a period of ownership, the disposal comprises only what is in substance a diminished part of the original asset: the other part has been exhausted by use or passing of time. In recognition of this, the expenditure attributable to the part of the asset which has wasted away by the date of the disposal is excluded from allowable expenditure. Further guidance on wasting assets are at CG76700+.

Redemption of feu duties

The Land Tenure Reforms (Scotland) Act 1974 prohibits the further granting of land in feu and provides for the voluntary or compulsory redemption of existing feu duties. The Rent Charges Act 1977 prohibits (with minor exceptions) the creation of further rent charges and provides for extinguishment after 60 years or earlier voluntary redemption of existing rent charges. So far as the payer is concerned, the redemption payment is allowable expenditure within TCGA92/S38. As regards the recipient, see CG14507.

Notional distributions by close company - TCGA92/S124

If a shareholder in a close company has paid higher rate tax (or up to 1983-84, investment income surcharge) on amounts notionally but not actually distributed, he or she is entitled to a deduction of that amount of tax in the computation on the disposal of the shares. See CG57101 for full instructions.

Inflation

The effects of inflation cannot be taken into account in determining the amount of a capital gain. See Secretan v Hart 45TC701. However, indexation allowance was introduced in 1982 to give some measure of relief for inflation. With the introduction of rebasing in 1988, only real gains accruing since 1982 should be within the charge to Capital Gains Tax.

NOTE. If a person is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.

American citizens' purchase of shares

American citizens who are resident and ordinarily resident* in the United Kingdom may be liable to a charge of up to 15 per cent equalisation tax on the purchase of United Kingdom shares and securities. Payment of this tax is allowable expenditure for Capital Gains Tax purposes.

* For 2013/14 and subsequent years ordinary residence does not need to be considered.