Taxes Consolidation Act 1997 section 555

Restriction of losses by reference to capital allowances and renewals allowances

Section 555 provides that capital allowances do not reduce the base cost of an asset for capital gains tax purposes, but restricts the amount of any allowable loss by the capital allowances granted in respect of the asset.

• The full cost of an asset remains deductible in computing chargeable gains, even where capital allowances have been claimed for income tax or corporation tax purposes.
• Where a loss arises on disposal, it is restricted by the amount of capital allowances and balancing allowances granted, reduced by any balancing charge arising on the disposal.
• Where an asset was acquired at written down value under section 289(6), 295, or 312(5), the capital allowances of both the transferor and transferee (and any earlier transferors in a chain) are taken into account in restricting the loss.
• Where a lessee bears the burden of wear and tear under section 299, the capital allowances that would have been available but for the transfer of that burden are also included in the restriction.