D7. Loss or destruction of an asset

- Fruitless expenditure maintaining a capital asset that is subsequently sterilised/lost

- In Glenboig Union Fireclay, in addition to compensation for the sterilisation of the fireclay bed, T also recovered damages for the cost of keeping the fireclay field open during years in which a dispute over its use was resolved (T succeeded, but the railway company subsequently used a statutory power to prevent the bed being worked upon paying compensation).

- Those damages were also a capital receipt.

- The answer would have been different if the expenditure turned out to be fruitful because the capital asset could subsequently be used: "In the former case, the expenditure would be shown to form a proper trading expenditure, and to be a legitimate deduction from gross profit in estimating the 'profit arising or accruing' from the Company's trade. In the latter case, it would be shown to be money spent without the possibility of return, and would therefore constitute just a loss of so much capital." (Glenboig at 449).

Legislation:

Cases:

Glenboing Union Fireclay Co Ltd v. IRC 12 TC 427;

HMRC manuals:

Commentary:

INHERITANCE TAX

- Loss/destruction of an asset as a "disposition"

- Intentional extinguishment of an asset is very likely a disposition.

- Unintentional extinguishment of an asset seems like it should not be.

- In Leven, it was held that "disposition" could include extinguishment, but "the primary meaning of the word, at any rate in relation to property, is to deal with the property in one of a number of ways, the property remaining in existence".

- Other features of the legislation indicated that when the legislation meant extinguishment, it said so.