Taxes Consolidation Act 1997 section 536

Capital sums: receipt of compensation and insurance moneys not treated as a disposal in certain cases

Section 536 provides for deferral of capital gains tax where compensation or insurance proceeds are reinvested in restoring or replacing a damaged, lost, or destroyed asset.

• Where an asset is damaged but not lost or destroyed, and the compensation is wholly (or substantially wholly) applied in restoring it, the owner may claim that the receipt is not treated as a disposal; instead, the base cost of the asset is reduced by the compensation received.
• Where an asset is lost or destroyed and the entire compensation is reinvested in a replacement asset within one year (or a longer period allowed by the inspector), the owner may claim no gain/no loss treatment on the old asset, with the base cost of the new asset reduced by the notional gain.
• Where only part of the compensation for a lost or destroyed asset is reinvested, relief may still be claimed provided the part not reinvested is less than the gain; the chargeable gain is reduced to the amount not reinvested, and the base cost of the new asset is reduced accordingly.
• The relief does not apply to wasting assets, and from 18 December 2023 it does not apply to disposals to authorities exercising compulsory purchase powers.