CGT Problem! Can you solve it?

[mullet]

Dealing with the chattels point first – yes, they are chattels. Tangible, movable property. But is it a set? There is not enough information on which to form an opinion, but as I said before this appears to be a computational question rather than “they are individual items and therefore covered by the chattels exemption” situation. So I think the question is badly worded, as a collection is not usually a set.
But ignoring that (and my penchant for semantics) I think the answer is as follows:

Is the compensation "small"? No, because it is >£3,000 and represents more than 5% of the value of the asset.

Amount not applied on restoration - £2,000. Was 95% or more spent on restoring the asset? No, that would be £16,150 and only £15,000 was spent. Is the compensation “small” in relation to the value of the asset (i.e. not more than the greater of 5% of the value of the asset in an undamaged state and £3,000)? Yes, it is not more than £3,000. So an election under Section 23(1) TCGA 1992 can be made for the part disposal rules not to apply.

So with no part disposal, the amount not applied on restoration is deducted from the base cost of the asset, to effectively defer the gain until ultimate disposal.

Base cost will be:
Original cost £3,000
Less compensation (£17,000)
Balance (£14,000)
Plus expenditure on reinstatement £15,000 (effectively enhancement expenditure)
Adjusted cost £1,000
(which I accept is £3,000 less £2,000 not applied on restoration, but I have showed the full and correct method)

The value of the prints in a damaged state £6,000 is a red herring. Why do they do that?

[Loza]

I think the reason for the unrestored value of £6,000 being given is for the normal part disposal calcualtion,
Proceeds 17,000
Cost £3000 * 17/17+6 (2,217)
Gain 14,783

Base cost C/fwd 3000 + 15000 - 2217 = 15,783

Then a comparison with a S23 claim, ie

Proceeds nil

Base cost c/fwd 3000 + 15000 - 17000 = 1000

[RAL]

Thanks MSP & Loza.

[mullet]

A measure of relief would be available under Section 23(3) TCGA 1992. In calculating any subsequent gain on disposal, the acquisition cost is reduced by the amount of the compensation spent on restoration. The remaining compensation is treated as a capital sum derived from an asset and chargeable to CGT, using the part disposal formula. In this sitauation then:

Consideration would be £2,000
A is £2,000
B is the value of the asset after restoration - which we are not given in the question. It is not the value of the damaged asset, as the part retained is no longer damaged.