CG20845 - Reliefs: Replacement of Business Assets (Roll-over Relief): Qualifying Assets: Depreciating Assets
Further Acquisition of Qualifying Assets
Definition
Specific rules apply for roll-over relief where the newly acquired assets are depreciating assets.
A depreciating asset is defined as a wasting asset under TCGA92/S44, see CG76700, or an asset with a maximum life of 60 years. That is, an asset which will become a wasting asset within 10 years of the relevant time.
Although land and buildings are treated as separate assets for the purposes of roll-over relief, the life expectancy of both is determined by the length of tenure of the land on which the building stands. If a building is constructed on leasehold land and the unexpired residue of the lease when the building is completed is 60 years or less, the building is a depreciating asset.
Freehold land is never a depreciating asset, but a building on it may be, if it has a life expectancy of less than 60 years. This includes buildings with planning permission or attached legal obligations that limit its expected life to under 60 years.
Where the new assets are depreciating assets, the chargeable gain on disposal of the old assets is not deducted from the cost of the new assets. Instead, that gain is held-over and is to be assessed on the occurrence of the first of the following events:
- the claimant disposes of the new asset,
- the claimant ceases to use the new asset for the purposes of his trade. ESC D45 states the cessation of use of an asset caused by the death of the claimant is not treated as an occasion of charge
- 10 years have elapsed since the date of acquisition of the new asset
For groups of companies see CG45945.
Further Acquisition of Qualifying Assets
Where all the proceeds of the disposal of the old asset (No 1) are applied in the acquisition of a depreciating asset (No 2) and:
- the gain on asset No 1 is held-over as outlined above,
and
- a further non-depreciating asset (No 3) is acquired,
and
- the acquisition is made before the chargeable occasion mentioned in the section above,
the taxpayer may make a claim under TCGA92/S152 to roll over the chargeable gain on asset No 1 into the cost of acquisition of asset No 3. If such a claim is made, the claim which applied to asset No 2 (the depreciating asset) is treated as withdrawn and asset No 3 is treated as acquired within the statutory time limit, see CG60300.
Note that TCGA92/S154 does not extend the time limit for making a claim, so the new claim must be made within the normal time limit – see CG60310.
If only part of the held-over gain can be set against the cost of the new non-depreciating asset (that is, because TCGA92/S153 (1) applies, see CG60291), the held-over gain can be split. The part which is allowable under TCGA92/S153(1) can be deducted from the new non-depreciating asset. The remainder can continue to be held-over until the chargeable occasion mentioned in the section above.
Example: Further Acquisitions
In March 2010 Emma bought for £150,000 a freehold shop which she uses and occupies exclusively for trade purposes until March 2015, when it is sold for £298,000. The chargeable gain on the disposal is therefore £148,000. Also in March 2015, Emma acquired a 50 year lease of a larger shop at a cost of £320,000, moves the trade to the new premises and claims roll-over relief. In March 2017, Emma assigned the lease for £350,000.
The sale of the first shop should be dealt with as if the disposal consideration were reduced by £148,000 to £150,000. Because the new asset is a depreciating asset, the gain of £148,000 is held-over. On assignment of the lease, the chargeable gain on the second shop is computed in the normal way, see CG71140+. In addition, the held-over gain of £148,000 is assessed as accruing at the date of the assignment.
However, if in June 2018 Emma buys the freehold of a third shop for £340,000 and so claims, the cost of that shop should be reduced by £148,000 to £192,000 and the held-over gain will not become chargeable in 2017-18.
If instead the third shop cost £260,000, that cost should be reduced by £110,000 (that is, £148,000 - (£298,000 - £260,000)). The balance of the held-over gain, that is £38,000, is assessable in 2017-18. See CG60291 where partial reinvestment occurs.
Example: Partial Reinvestment
If only part of the proceeds of the disposal of the old asset (No 1) is applied in the acquisition of a depreciating asset (No 2) only part of the gain may be held over, see CG60291.
If a new non-depreciating asset is acquired, the amount of the gain that can be rolled over cannot exceed the amount of the gain that was held over on the acquisition of the depreciating asset.
In March 2015 Dan sells a freehold shop for £200,000, realising a gain of £60,000. In 2017 he acquires an item of fixed machinery for £180,000 and claims relief. The held over gain is £40,000, being the amount of the gain that has been re-invested. The chargeable gain in 2014-15 is £20,000.
In February 2019, while the machinery is still being used in the trade, he acquires a further freehold shop for £260,000 and makes a claim to apply Section 154(4). The gain that can be rolled over is limited to £40,000. The cost of the new freehold shop is reduced to £220,000 and the chargeable gain in 2014-15 is not affected.