Taxation of Chargeable Gains Act 1992 section 23

Receipt of compensation and insurance money not treated as a disposal

Section 23 provides relief from capital gains tax when compensation or insurance proceeds are received in respect of damaged, lost or destroyed assets, and those proceeds are used to restore or replace the asset concerned.

• Where an asset is damaged but not destroyed, compensation used to restore it can be treated as not giving rise to a disposal, provided the full sum (or all but a small part) is used for restoration, or the sum itself is small relative to the asset's value — instead, the compensation reduces the base cost of the asset for future disposals.
• Where an asset is lost or destroyed and the compensation or insurance proceeds are used within one year (or a longer period if HMRC allows) to acquire a replacement asset, the owner can claim rollover-style relief so that no gain or loss arises on the old asset, with the base cost of the replacement reduced accordingly.
• Where only part of the compensation is reinvested in a replacement but the amount not reinvested is less than the gain on the old asset, partial relief is available — the gain is reduced to the amount not reinvested, and the base cost of the replacement is reduced by the same amount.
• Special rules apply to destroyed or irreparably damaged buildings: the building is treated as a separate asset from the land it stands on, allowing rollover into a replacement building on different land, with just and reasonable apportionments of expenditure and compensation between building and land.