CG60282 - Reliefs: replacement of business assets (roll-over relief): relevant assets - fixed plant or machinery
Overview
This section explains what is meant by ‘fixed plant or machinery’ for the purposes of roll‑over relief. The term is not defined in legislation, so it is given its ordinary meaning.
The context of section 155 of the Taxation of Chargeable Gains Act (TCGA) 1992 makes clear that ‘fixed’ does not mean fixed capital or fixed assets as opposed to circulating capital or current assets. If that were the intention, Classes 2 and 3 would be unnecessary, as they already cover plant and machinery commonly treated as fixed capital assets.
‘Fixed’ describes the physical state of the asset as it is used.
Some plant and machinery is inherently mobile and therefore does not fall within Class 1B. For example, motor vehicles and other wheeled or tracked vehicles (such as heavy tractors) do not qualify where their function in the trade is as vehicles (see Williams and Others v Evans [1982]. However, plant and machinery that is mobile by nature may still be regarded as fixed if it is kept in a permanently fixed position, such as a vehicle displayed permanently in a museum.
Assets such as burglar-alarm systems or electricity generators are clearly fixed. Plant or machinery that has become part of a building- such as lifts or escalators- should be treated as an addition to the building rather than as plant and machinery. These items would fall within the scope of 'building' under Class 1A.
Between these two examples, the position may be uncertain. Whether an item is “fixed plant or machinery” is a question of fact and degree, assessed using the four tests below.
Tests for determining whether an item is fixed plant or machinery
1. Nature of the item in the context of the trade
Determine whether the item is plant or machinery in the context of the particular trade, as opposed to trading stock, or part of a building (see ‘Fixed plant and machinery as part of a building’ below).
2. Intention to keep the object in a particular location
Consider whether the person intends to keep the item in a specific location indefinitely for use in the trade. For example, where the trade is the hiring out of equipment, the lessor is unlikely to intend the item to be fixed in the role it performs in the lessor's trade, even if it is fixed when used by the lessee.
3. Importance of the location to the item’s trade function
Ask whether the item’s specific location is essential to its function in the trade.
For instance, office furniture such as desks or bookcases can normally be moved without affecting function. But in an historic house open to the public, the precise location of furniture may be important to represent historic accuracy.
4. Means of permanent fixing
Consider what form of permanent fixing is available or necessary without making the item part of the land or buildings, and without damaging or destroying it.
These tests are applied collectively to determine whether an item should be treated as fixed.
Examples
Items that are moveable but have been accepted as fixed in the context of their trade use include:
washing machines and dryers in a launderette
a fairground carousel in a travelling fairground show
By contrast, shop fixtures and fittings- such as shelves, counters and moveable partitions- are usually intended to be moveable to suit changing layouts and displays. They should not be regarded as fixed plant and machinery.
Items such as lifts and escalators that have become part of a building should be regarded as additions to the building, rather than as plant and machinery (see below).
Fixed plant and machinery as part of a building
Section 155 TCGA 1992 distinguishes between:
fixed plant and machinery that forms part of a building
other fixed plant and machinery
The terms ‘land or buildings’ and ‘plant and machinery’ are not mutually exclusive. an item of fixed plant or machinery has clearly become part of a building, it should be treated as an addition to the building for roll-over relief purposes.
Depreciating assets
Certain relevant assets are depreciating assets. Classes 1B, 2 and 3 in section 155 TCGA 1992 include depreciating assets, which are subject to different rules (see CG60285).