Gain on FA disposal proceeds exceed original cost

Got advice which conflicts with my memory

Didn't find your answer?

How is the gain on fixed asset disposal treated when the proceeds exceeds the original cost. My thoughts: orig cost less TWDV = balancing charge.

Proceeds less orig cost = capital gain.

Just had advice from expert helpline that it should be treated as Proceeds less TWDV = balancing charge.

Replies (8)

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By David Heaton
13th Nov 2018 11:55

Your own thoughts are right. You can't have a balancing charge on proceeds in excess of cost, as you haven't had any allowances to claw back. What is the fixed asset in question? Don't forget there's a chattels exemption for CGT. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg76550

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Replying to David Heaton:
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By CTA
13th Nov 2018 12:01

Don't forget that the wasting chattels exemption does not apply where the asset in question has been used for the purposes of a trade, profession or vocation, and has qualified for capital allowances.

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Replying to CTA:
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By Portia Nina Levin
13th Nov 2018 12:47

The wasting chattels exemption DOES still apply, irrespective of whether the asset has been used for the purposes of the trade.

What changes in relation to assets that have used for the purposes of a trade is that they are not automatically treated as having a life of less than 50 years, such that the exemption for TMP that are wasting assets does not apply.

Obviously, it could also be a car (that has managed to appreciate in value), which would also be exempt, but as usual we're all, in the words of Bob Dylan, just p155ing in the wind.

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Replying to Portia Nina Levin:
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By ABHill
24th Nov 2018 20:09

Neil Young

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By Marion Hayes
13th Nov 2018 12:01

First of all you are dealing with a disposal which is usually from a pool. The disposal proceeds to be used in the pool calculation is restricted to the cost when the asset was introduced. This could be an arms length purchase, a market value transfer or a WDV transfer depending on the circumstances. Then, unless the proceeds exceed the pool wdv there will be no balancing charge, just a reduced amount carried forward for the wda calculation.
If the disposal was an asset in a single asset pool with a private use restriction you restrict the proceeds in the same way but could then have a balancing charge/allowance suitably restricted for the private element.
Then you look at the Capital gains side of the transaction to identify whether there is even a cgt event - and if so did the proceeds exceed the cost to create a gain? Not all assets are liable to cgt in the same way.
It is unusual for there to be a capital gain once you have discounted assets but if there is you then have to apply the rules as applicable to thetype of asset e.g. chattels, wasting assets, etc etc

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Replying to Marion Hayes:
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By Mr_awol
13th Nov 2018 12:51

Marion Hayes wrote:

The disposal proceeds to be used in the pool calculation is restricted to the cost when the asset was introduced. This could be an arms length purchase, a market value transfer or a WDV transfer depending on the circumstances.

Not necessarily restricted to the cost when introduced at all - particularly since you go on to include where a market value or WDV transfer is included, since presumably these transfers would be between connected persons. In that case the proceeds are restricted to the greatest qualifying expenditure incurred by the transferor (or if multiple transfers, then anyone in the chain).

Aside from the connected party rule, though, I would agree with a restriction to cost for disposal proceeds when calculating the balancing charge

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By Ruddles
13th Nov 2018 12:41

imbs wrote:
Just had advice from expert helpline that it should be treated as Proceeds less TWDV = balancing charge.

"Expert"?

To be fair, as noted above, it is possible that proceeds may not need to be restricted to cost, but one assumes that doeesn't apply in this case. Unless you've told the "expert" something that you haven't told us.

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By richardterhorst
19th Nov 2018 11:13

Having worked in different tax jurisdictions I can only but marvel at how a simple transaction (and it should be Proceeds - cost = taxable gain) in UK tax law becomes so complicated that even intelligent trained accountants struggle figuring it out.

Even reading the responses (yes even from Portia) has my head spinning and saying to myself "why bother understanding as I do not have that problem (as yet?)"

But entertaining at times nevertheless especially when it becomes a tad heated.

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