Taxation of Chargeable Gains Act 1992 section 41

Restriction of losses by reference to capital allowances and renewals allowances

Section 41 restricts the amount of a capital loss that can be claimed on the disposal of an asset where capital allowances or renewals allowances have already been given in respect of the same expenditure, in order to prevent double tax relief.

• When calculating a capital loss on disposal, any expenditure for which capital allowances or renewals allowances have been (or may be) claimed must be excluded from the allowable deductions, reducing or eliminating the loss but never converting it into a gain.
• Where the asset was acquired at written-down value through a qualifying transfer (such as a sale election under CAA 2001 section 569 or a succession on death under CAA 2001 section 268), the capital allowances previously claimed by the transferor (and any earlier transferors in a chain) are also taken into account in restricting the transferee's loss.
• Capital allowances for this purpose include standard capital allowances under the Capital Allowances Act 2001 (but not structures and buildings allowances), cash basis capital expenditure deductions, replacement domestic items relief, sea wall expenditure deductions, and cemetery trade deductions; a renewals allowance is treated as relating to the old asset being replaced.
• For plant and machinery disposals under Part 2 of CAA 2001, the net capital allowances are calculated as the difference between the qualifying expenditure and the disposal value brought into account, unless the cash basis rules, partial use rules, or partial depreciation subsidy rules apply.