Commentary

C2.502 Replacement of assets lost or destroyed

Capital gains tax
Capital gains tax | Commentary

C2.502 Replacement of assets lost or destroyed

Capital gains tax | Commentary

C2.502 Replacement of assets lost or destroyed

The owner of an asset which is lost or destroyed may elect that the compensation or insurance recovery does not give rise to a chargeable gain, where the capital sum received is applied in acquiring another asset to replace the one that was lost1. The capital sum must be so applied within one year of its receipt. The one year time limit may be extended at the discretion of HMRC2. The whole of the sum received must be applied3.

There is no provision defining what is meant by a replacement; HMRC take the view that the term should be interpreted reasonably to allow a claim for relief for a replacement asset which is of similar type and function to the original asset4.

For capital sums received after 5 April 1996, the relief applies in respect of all wasting assets5. Where a wasting asset is lost or destroyed, the amount of the expenditure from which the deduction is made is the cost as reduced in accordance with Division C2.9.

Where a building is destroyed or irreparably damaged, the relief may be applied in respect of compensation used to build or acquire a building on other land (but not in acquiring the other land)6. Since the original building was part of the land on which it stood, any

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