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Dear Sir
When plant & Machinery is sold at a profit, a capital gain arises. But when sold at a loss why is the loss not allowable? How does it get relief through capital allowances?
Have you studied the chapter on capital allowances and watched the lectures?
Yes, AIA has already been given when bought in the business. But when its sold even at a profit the disposal is restricted to the original cost and then WDA is given @ 18%.
Which one is the relief? the AIA or the disposal taken off?
If an item of plant and machinery is covered by the £6,000 chattel exemption then there will be no gain to compute if on disposal it is sold for more than original cost and of course no loss to compute if sold for less than cost as the disposal is exempt.
If the asset is not covered by the chattels exemption then if sold at above cost (very unlikely in reality!!) a normal capital gains calculation will follow as in the capital allowance (CA) computation if an asset is sold at above cost then the deduction from the pool is limited to the original cost of the asset – hence if bought for £100,000 and sold for £140,000 a gain of £40,000 will arise and within the CA computation the benefit of the CA will be removed as having originally put £100,000 into the CA computation on purchase the same amount is then removed on sale leaving a net nil CA.
If the asset was however sold for £40,000 then this amount only is removed from the CA computation leaving a net cost to the business of £60,000 available for CA – the taxpayer cannot also have a £60,000 loss to use against capital gains when that same loss has already been relieved within the CA system as a deduction from trading profits within income tax.
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