CGT Problem! Can you solve it?

[sssaaammm]

Jane has a collection of rare prints which cost £3,000 in May 1983. They were damaged by water in November 2008 and Jane received £17,000 by way of insurance compensation in May 2009. She spent £15,000 on restoration. The value of the prints in a damaged state was £6,000.

Requirements: Compute any CGT liability arising and the amount of allowable expenditure carried forward.

I'd be so grateful if you help me solve it..

[Peter D]

There is no CGT liability as you have not sole them.
These are chattels :
http://www.hmrc.gov.uk/cgt/possessions/calc-cgt.htm
Addresses your question.
Regards Peter

[AvocadoK]

Actually, CGT is indeed chargeable when in this situation, under s22 TCGA. S23 then limits the proceeds to the amount not applied in restoring the asset (£17,000 - 15,000 = £2,000). You then do a part disposal calculation using cost x A/A+B where A = £2,000 and B = value of restored asset. The question gives the value of the unrestored asset, which isn't very helpful!

HMRC manuals re calculation are quite good - see
http://www.hmrc.gov.uk/cgt/possessions/calc-cgt.htm

AK

[mullet]

First principle - are they a collection or a set? If a set they will be treated as one asset if they are essentially similar, complementary, worth more together than individually, sold (or deemed to have been disposed of as in this case of a "capital sum derived from an asset") to the same person, connected persons, or people acting in concert. Marginal relief for chattels doesn't come into the equation here, because the consideration exceeded £15,000.

But if they are a collection rather than a set, and if the value of any one does not exceed £6,000, then I agree with Peter D that they will be exempt assets. But what if their value increases in the future? We would still need to know base cost. That would be original cost less the amount received as insurance proceeds, plus the amount spent on restoration (i.e. enhancement). The valuation of the paintings in their damaged state doesn't matter in the context of a CG computation.

[RAL]

Is this homework?

[Peter D]

I recon it is. He has another question in the Vat section. Regards Peter

[sssaaammm]

Thank you guys for your help.. my answer to this question was very similar to the one AvocadoK did.. I really hope it's the right one..

Actually, CGT is indeed chargeable when in this situation, under s22 TCGA. S23 then limits the proceeds to the amount not applied in restoring the asset (£17,000 - 15,000 = £2,000). You then do a part disposal calculation using cost x A/A+B where A = £2,000 and B = value of restored asset. The question gives the value of the unrestored asset, which isn't very helpful!

HMRC manuals re calculation are quite good - see
http://www.hmrc.gov.uk/cgt/possessions/calc-cgt.htm

AK

Is this homework?

No it's not homework.. this is another question (just like the one about VAT) from my resit exam i did last week.. and I really want to pass it.. so like I said i've been calculating my marks.. thanks for your help again

[Incredulum]

The question makes sense if you assume that "damaged state" = "restored state". Which is perfectly reasonable. A restored print will probably be worth less than the original undamaged ones were. Is this a question in a LAPADA exam or suchlike...?!

[mullet]

BTW, given the content of the question and the clear requirement for calculations, the answer CANNOT simply be "they are chattels each worth less than £6,000, not part of a set and are therefore exempt. Please give me full marks for writing one sentence".

[RAL]

I was searching and came across this thread again.

I think, the question is testing on retained small proceeds as per S23 (1)(B) to avoid part disposal. As the compensation retained is less than £3000, Jane can claim this retained compensation to be treated small. (Does this "small proceeds" rule apply here?)

Now here is the complications and I would be interested to find out
1. What would be the base cost of this asset (Generally, I would do cost less insurance claim =new base cost). and
2. Will it be treated as a Chattels.

Thanks