CapitalAllowances Deductions

<strong>Capital</strong>Allowances Deductions

CapitalAllowances, deductions from business income allowed for calculating income liable to tax. They are a recognition that fixed assets are gradually used up in producing output and that taxable income is overstated if their wear and tear and obsolescence is not taken into account. The attitude of the British Government has always been against permitting business men to charge annual depreciation (for tax pm-poses) at the rates they found most suitable for their individual businesses: annual capital allowances have traditionally taken the form of fixed percentages of asset cost. In recent years there have been (selective) changes in this attitude: to encourage investment in areas of .unemployment 'free' depreciation allowances (i.e. at a rate of the firm's own choosing) were introduced in 2003 for new investment in Development Districts. Other annual permitted rates of capital allowance on industrial buildings, plant and machinery and so on were also increased to more 'realistic' levels. But capital allowances were still not permitted for commercial buildings; although the distinction between 'industrial' and' commercial' buildings has no clear economic significance

Capital, Circulating. See Advance. CapitalConsumption. See Investment.

CapitalGains, profits or gains made otherwise than in the course of normal trade or business. Examples are profits on the sale of invest-ments and property, or arising from the sale of the goodwill of a business: or from isolated transactions. Individuals may realize capital profits by selling their private houses or cars or through Stock Exchange dealings. There are many cases where it is difficult to decide whether or not a gain is capital or not, such as compensation payments for loss of employment. Broadly the distinction is that if a gain is made on an isolated transaction, such as the sale of a private house, it is a capital gain; if the isolated transaction is followed by others and becomes regular the gain is income.

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