Commentary

C2.603 Restrictions by reference to actual cost

Capital gains tax
Capital gains tax | Commentary

C2.603 Restrictions by reference to actual cost

Capital gains tax | Commentary

C2.603 Restrictions by reference to actual cost

For corporation tax purposes and, in relation to disposals before 6 April 2008, for capital gains tax purposes, the substitution of the market value at 31 March 1982 in the case of an asset held at that date does not apply in certain circumstances, namely:

  1.  

    (a)     where the substitution would increase the gain, or substitute a gain for a loss

  2.  

    (b)     where the substitution would increase the loss, or substitute a loss for a gain

  3.  

    (c)     where, either on the facts of the case or by virtue of TCGA 1992, Sch 2 (assets held at 6 April 1965, see C2.610–C2.614), neither a gain nor a loss would otherwise arise

  4.  

    (d)     where the disposal is a specified no gain/no loss disposal1

In other words, the substitution may serve only to reduce a chargeable gain or an allowable loss; it may not create or increase a chargeable gain, nor create or increase an allowable loss. The comparison between the outcomes of different computations is often referred to as the 'kink test', and it was abolished for capital gains tax purposes by FA 20082. For capital gains tax purposes in relation to disposals on or after 6 April 2008 by individuals and trustees the general re-basing rule for assets held on 31 March 1982 (see C2.601) applies automatically without exception3.

The comparison is made after deducting an allowance for indexation (where relevant4), but before taking account of any reliefs5.

Example

A Ltd acquired a chargeable asset on 1 June 1980

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