CG17516 - Indexation: example: capital allowances exceed value on 31/3/82

F Ltd purchased a ship in 1975 for £2,000,000.

The market value on 31 March 1982 was £1,000,000.

It was sold in March 1993 for £500,000.

The net capital allowances were £1,500.000.

In this case the capital allowances exceed the market value on 31 March 1982. However the market value can only be reduced or eliminated. It cannot become negative expenditure.

- - - £
- Disposal proceeds - 500,000
Less Market value 31.3.82 1,000,000 -
- Deduct capital allowances (restricted) 1,000,000 NIL
- Unindexed gain - 500,000
Less Indexation - -
- Cost 2,000,000 -
- Capital allowances 1,500,000 -
- - 0.753 x 500,000 376,500
- INDEXED GAIN - 123,500

As TCGA92/S41 cannot give rise to a gain, but only eliminate a loss, the loss is nil, and there is no gain.