CG60271 - Reliefs: replacement of business assets (roll-over relief): new assets
Relevant assets
To qualify for roll-over relief, the new assets must be relevant assets (see CG60280).
There is no geographical restriction on the location of the assets, but they must be subject to Capital Gains Tax or, for companies, Corporation Tax.
Time limit for reinvestment
The reinvestment must take place within a specific time limit (see CG60300).
Use on acquisition
Subject to the below section ‘New assets not brought immediately into trade use’, new assets must be taken into use immediately on acquisition, and only for the purposes of the trade. There is, however, no requirement that they continue to be used for the purposes of the trade for a set period of time.
The High Court in Campbell, Connelly & Co. Limited v Barnett [1992], held that, for roll-over relief, the date of acquisition is the date of contract completion.
For newly constructed assets and improvements to existing assets, the date of acquisition is the date on which the asset or the works are completed and ready for use.
If the asset is ready for use when a person acquires beneficial ownership and possession, they must use it in the trade immediately. However, they may need to make minor alterations or adaptations, or, for example, obtain stock or engage staff before the asset can be taken into use. HMRC staff should not deny roll-over relief solely because the asset was not brought into use immediately. However, the decision in Milton v Chivers [1995] confirmed that acquisition and taking into use must be proximate. If the asset cannot be taken into use immediately, it should be brought into use as soon as practicable and without unnecessary delay.
For example, taking over a public house but not opening until after the next licensing court may be an acceptable interval. Taking over a hotel as a going concern in May but not opening until October would not be acceptable, unless the hotel is, for example, in a ski resort and the main season is in winter.
If the trade is seasonal, a longer interval may be acceptable. For example, an aircraft used for crop spraying or an ice cream kiosk in a seaside resort may not be used until the new season begins.
New assets not brought immediately into trade use
Where new assets are not, on acquisition, immediately taken into use for the purposes of the trade, Extra Statutory Concession (ESC) D24 provides that they will qualify for relief provided:
capital expenditure is incurred on enhancing the value of the asset
the improvement works begin as soon as practicable after acquisition and are completed within a reasonable period
the asset is taken into use (and in the case of land or buildings, occupied) only for the purposes of the trade as soon as is practically possible after completion of the work
the asset is neither let nor used for any non-trading purpose in the period between acquisition and taking into use for trade purposes
This interpretation of "which on the acquisition are taken into use" in section 152(1) of the Taxation of Chargeable Gains Act (TCGA) 1992 was approved by Sir Richard Scott in Steibelt v Paling [1999], who commented "I regard D24 as being a very sensible attempt by the Revenue to indicate how it believes the language of the 1992 act in this regard should be applied."
HMRC applies the interpretation set out in ESC D24 where appropriate, while acknowledging that ESC D24 is not strictly a concession.
Business Asset Roll-over Relief (Self Assessment helpsheet HS290) (GOV.UK) provides an example.
Disposal and reacquisition of the same asset
Section 152(1) TCGA 1992 refers to new assets as ‘other assets’, implying that there cannot be a re-acquisition of the same asset. ESC D16 says that for the purposes of section 152 TCGA 1992, where a person sells a business, or a business asset, and for purely commercial reasons subsequently repurchases the same asset, that asset will be regarded as a new asset.
Partial use in terms of space
If the new asset is a building or structure, relief is restricted if only part of it is taken into use for the purposes of the trade (see CG60292).
Acquisition of multiple assets
Where more than one relevant asset is acquired within the time limit for reinvestment, the person can choose how to allocate the relief against the new assets.
Acquisition to make a gain
Roll-over relief is not available if the new asset is acquired wholly or partly to make a gain from a future disposal (see section 152(5) TCGA 1992). For example, if a farmer buys more land than needed (perhaps because the seller will not sell only part of an estate) and plans to sell the surplus quickly, often to finance the part retained, relief is not available.
Improvements to existing assets
ESC D22 says that where a person carrying on a trade uses the proceeds from the disposal of an old asset on capital expenditure to enhance the value of other assets, such expenditure is treated for the purposes of roll-over relief as incurred in acquiring other assets provided either:
the other assets are used (and for land and buildings, occupied) only for the purposes of the trade
on completion of the work on which the expenditure was incurred the assets are immediately taken into use and used (and for land and buildings, occupied) only for the purposes of the trade
Further interest in existing assets
ESC D25 says that where a person carrying on a trade uses the proceeds from the disposal of an old asset to acquire a further interest in another asset which is already in use for the purposes of the trade, the further interest is treated for the purposes of roll-over relief as a new asset which is taken into use for the purposes of the trade.
Applying consideration
Unless a person requests an extension to the time limit in section 152(3) TCGA 1992, it is not necessary to establish a direct link between the disposal proceeds and their application. For more information about the time limit for reinvestment, see section 152(3) TCGA 1992 and CG60300.
If a person invests in new assets within the statutory time limit, it is presumed that the relevant amount of disposal consideration was applied in acquiring the new assets included in the claim. It is not necessary to take account of, for example, loans outstanding on the old assets or raised for the new assets.
It is necessary to compare the net consideration for disposal (after deducting allowable incidental costs of disposal) with the cost of acquisition (including allowable incidental costs of acquisition). The case of Wardhaugh v Penrith Rugby Union Football Club [2002] EWCH 918 (Ch) confirms that the amount or value of the consideration given for acquiring the new assets is the amount before any reduction under section 50 TCGA 1992 (see CG15288).
Example: application of consideration
A farmer sells land for £150,000 and incurs £5,000 in expenses of sale. Three years later, they buy land for use in the trade at a cost of £145,000 plus £4,000 in expenses. To fund the purchase, they raise a mortgage of £100,000. For a claim under section 152 TCGA 1992, the disposal consideration is £145,000 and the amount applied in acquiring new assets is £149,000. Full relief is therefore due.