CG60281 - Reliefs: Replacement of Business Assets (Roll-over Relief): Qualifying Assets: Land and Buildings
Separation of Land and Buildings
Licensed Premises Owned by Brewers
Partnerships
Non-residents and Interests in UK Land
Separation of Land and Buildings
For the purposes of roll-over relief, land and buildings are treated as separate assets. The normal rule in TCGA92/S288 that land includes any buildings is modified for roll-over relief. For example, a hotel is made up of two assets which are the land and the buildings. Separate claims can be made for each asset. In that situation it will be necessary to apportion acquisition costs and disposal consideration and to make separate computations for each asset. This additional flexibility will often result in a claim being available where it would otherwise be prevented because insufficient sale proceeds have been invested in new assets.
‘Occupied (as well as used)’
With certain exceptions, land and buildings are qualifying assets within TCGA92/S155 if they are both used and occupied only for trade purposes.
Under TCGA92/S156, the exceptions are where the trade consists of:
- dealing in or developing land (except land or buildings not held as trading stock)
or
- providing services for the occupier of land in which the person carrying on the trade has an estate or interest
As above, TCGA92/S155 requires that land and buildings are ‘occupied (as well as used) only for the purposes of the trade. The words “occupied” and “used” are not defined in the Act. Therefore you will have to rely on the ordinary dictionary meaning, together with any judicial guidance on the terms occupied and used. To qualify for roll-over relief the land would have to be occupied as well as used only for the purposes of the claimant’s trade. In the case (49 TC 124) Foster J specifically declined to give an interpretation of the words in what is now S155.
“I am not prepared to try to give any definition in regard to the words “used” and “occupied” within the ambit of Section 33. But whatever the words may mean and whatever meanings can be given to them within Section 33, I find it impossible to say that the mere visits to a site coupled with the intention to build and application for planning permission, can satisfy that section”.
So the purchase of land with the intention of building a qualifying asset, site visits and planning permission were held not to be sufficient to qualify. Where land is acquired with the intention of erecting a building for use in the owner's trade but the plans do not come to fruition and the land (as a bare site or partially or fully developed) is sold or let without having been occupied and used for the purposes of the claimant's trade, it should not be regarded as a qualifying asset.
In the case of [1959] AC248 Lord Denning set out the criteria which may be used to ascertain whether land is deemed to be occupied. The same test can be applied to buildings.
- “Legal possession is not the same as occupation. Occupation is a matter of fact and only exists where there is sufficient measure of control to prevent strangers from interfering. There must be something actually done on the land, not necessarily on the whole but on part in respect of the whole. No-one would describe a bombed site or an empty unlocked house as “occupied” by anyone; but everyone would say that a farmer “occupies” the whole of his farm even though he does not set foot on the woodlands within it from one year’s end to the other”.
In the same case the Courts were asked to decide whether land which had been obtained by the hospital in order to preserve the serenity of its surroundings was in fact used by the hospital. It was held that an owner of land could establish use where he simply kept the land in a virgin state for his own special purposes.
- “An owner can use land by keeping it in its virgin state for his own special purposes. An owner of a powder magazine or a rifle range uses the land he has acquired nearby for the purposes of ensuring safety even though he never sets foot on it. The owner of an island uses it for the purposes of as bird sanctuary even though he does nothing on it, except prevent people building there or disturbing the birds.”
It is clear that ownership of an asset is not enough to satisfy these tests. There must be actual use by the claimant for the purposes of their trade and they will have to show that they retain control by virtue of occupation of the land or buildings. The tests are ultimately a question of fact.
Let Properties
Where land and buildings are let by the owner upon terms which give the tenant the right to occupy to the exclusion of all others, they are not normally qualifying assets of the owner for the purposes of the owner's trade.
Exceptions to this rule are:
- land and buildings let to a partnership by an acting partner, see CG60286
- land and buildings let to an individual's family or personal company, see CG60260
- lessors of tied premises, see section ‘Licensed Premises Owned by Brewers’ below
- lessors of furnished premises and caravan sites where the owner provides services in circumstances which amount to trading by the owner, see PIM4300;
- commercial letting of furnished holiday accommodation, see CG60287
Where premises are let in circumstances such that the owner remains the legal occupier of the land or buildings, a claim to relief is not prevented solely because there is also occupation by others. Examples of such lettings are:
- a hotel or guest house (except any part not used exclusively for trade purposes)
- licensed premises owned and managed by a brewer
- a house let to an employee who is required to occupy those premises (and no other) for the proper or better performance of the duties of the employment, see EIM11341+
A farmhouse occupied by the farmer as a private residence is not regarded as a building occupied only for trade purposes except to the extent that any part of it is used exclusively for trade purposes, see CG64680.
A house provided by a company for occupation as the private residence of a director will not normally qualify under TCGA92/S155 because occupation of the property (and no other) is unlikely to be essential to the proper or better performance of the duties of the office.
A house provided by a partnership for occupation as the private residence of a partner may qualify under TCGA92/S155 if:
- the terms of the partnership agreement require the particular partner to live in the particular house,
or
- the occupation of the house by the partner is essential to the trade of the partnership.
In (55TC1) it was held that the tests set out by the House of Lords in (1969) 1WLR1708 could apply to partners. But, on the particular facts, the tests were not satisfied in that case. Whether or not occupation of a particular house is essential to the trade is a question of fact. To fulfil the relevant tests as set out in the judgment on page 7 the claimant has to show either:
- that it is essential that the employee lives in that particular house and that this understanding is implicitly or explicitly agreed by employer and employee; or
- that while it is not essential that he does occupy that particular property, by doing so he can better perform the duties of his employment and there is an express term in the contract that he does occupy that property
Options Over Land in the UK
Roll-over relief is available on a disposal of an interest in a qualifying asset.
In law, the grant of an option over land in the UK creates, in the hands of the grantee, an immediate equitable interest in the land. Accordingly, the grant of an option over land in the UK is a disposal of an interest in that land. If the land is a qualifying asset, a claim to roll-over relief is available in respect of the gain accruing on the grant of the option.
This analysis is not affected by the regime in Section 144 which provides special computational rules for dealing with options.
The grant of options over other qualifying assets may also represent the disposal of an interest in those assets. The issue turns on a point of contract law and depends upon the nature of the asset. Where the asset over which the option has been granted is not an interest in land in the UK, the availability of roll-over relief should not be conceded without prior reference to Capital Gains Technical Group. A full description of the asset and a copy of the option agreement will be required in your submission. An instant decision cannot be given over the telephone.
Licensed Premises Owned by Brewers
Where licensed premises owned and managed by a brewer in such circumstances that the brewer remains the legal occupier (that is, a managed house) are disposed of, relief may be allowed under TCGA92/S152. Relief will extend to the part of the premises in which the manager lives.
Lessors of tied premises (as defined in ITTOIA05/S19 or CTA09/S42) are to be treated, for the purposes of TCGA92/S152, as both occupying and using the tied houses or premises (including any part in which the tenant resides) for the purposes of the lessor's trade.
In considering whether the proceeds from the disposal of an asset have been applied in replacing that asset, expenditure on the following may be regarded as satisfying the conditions of relief -
- improvements to existing premises which qualify, see CG60280;
- the erection of new qualifying premises on land already owned;
- the acquisition of new sites where planning or licensing approval already exists when the claim under TCGA92/S152 is made.
The brewer's allocation of the proceeds of disposal may be accepted.
Non-residents and Interests in UK Land – TCGA92/S159A
Beyond Class 1 of TCGA92/S155, an interest in UK land can be a qualifying asset for roll-over relief where it is disposed of by a non-resident who also acquires another interest in UK land.