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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Assets held on 6/4/65: alternative apportionment of overall gain

TCGA92/SCH2/PARA16 (5)The time-apportionment formula does not work fairly where additional expenditure has been incurred on an asset which was created with little or no allowable cost of acquisition. This is because most of the gain is attributed to the later expenditure at the later time. (For example, the purchase of the goodwill of a business which is then amalgamated with another business built up from scratch and therefore, having before the amalgamation a goodwill which cost nothing.) In such cases

  • the gain arising from the enhancement of the value of the asset attributable to the additional expenditure should be ascertained, and
  • the remainder of the gain in value of the asset should be regarded as derived from the original creation of the asset and each gain then apportioned over time accordingly.For an example see CG15577. Moreover, in any case where the value of the asset appreciated substantially before the additional expenditure was incurred, the amount of the gain attributable to the enhancement in value as a result of the additional expenditure may be determined as a question of fact (instead of by pro rata apportionment as CG15602) and, in general, along broad lines; the balance of the overall gain being taken as derived from the expenditure on acquisition of the asset. In cases where

  • the amount of tax at stake is substantial, and
  • land in the United Kingdom is involvedreference should be made to the Valuation Office on form CG20, see CG74320+, before agreement of the part of the overall gain attributable to the additional expenditure.