Sarah received an insurance policy payment for damage caused by a fire in a property that she owns. This is treated as capital payment derived from an asset (the property) which means she must pay CGT on it.
On the other hand, if Sarah decides to use the payment to repair the damage done to the property, she has the option of defering the payment of the CGT. The amount of compensation she recieves will be treated as reducing the cost of the asset. The CGT won't be due on the payment until the asset is sold.
The deferral of CGT is a relief meaning it must be claimed, it does not apply automatically.
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