CG15700 - Compensation: assets damaged/destroyed: introduction

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Capital Gains Tax is charged on the disposal of assets. This is extended by s22 TCGA92 which treats capital sums derived from an asset as a deemed disposal of that asset (see CG12940+). This includes capital sums received as compensation for damage to an asset, or for the loss or destruction of an asset.

The owner of an asset may make a claim under s23 TCGA92 to relieve some or all of the charge to Capital Gains Tax where such compensation is received and is applied in restoring or replacing the asset damaged, lost or destroyed. Relief is available where a satisfactory and correct claim is made and

  • an asset has been damaged, without being destroyed, and the compensation is applied in restoring the asset, see (CG15701), or

  • an asset has been lost or destroyed and the compensation is applied in replacing the asset (see CG15740), or

  • a building has been destroyed or irreparably damaged and the compensation is applied in acquiring a replacement on other land, see (CG15742).

See SACM10010 for further information about satisfactory and unsatisfactory claims.

Time Limit for claiming relief

The time limit for claims under s23 TCGA92 is:

  • for persons other than companies, four years from the end of the year of assessment to which the claim relates, see SACM3035
  • for companies, four years from the end of the accounting period to which the claim relates, see CTM90610.
Form of Claim

There is no specified form that must be used in order to make a claim under s23 TCGA92. The claim may be made in any form the claimant chooses provided that it is made in writing and identifies

  • the claimant and their unique taxpayer reference
  • the asset which is the subject of the claim
  • the amount of compensation received
  • how the conditions for the relief have been met

If a satisfactory and correct claim is made before the self-assessment return is filed, the chargeable gain does not need to be declared in the self-assessment return.

If the self-assessment return is filed before a satisfactory and correct claim is made, any gain arising from the deemed disposal under s22 TCGA92 should be declared in that return.

When you acknowledge that you have received a claim under s23 TCGA92, it is preferable to avoid using words such as ‘accept’ or ‘admit’ which might lead the claimant to believe that their claim is acceptable at that stage.