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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Roll-over relief: assets of individual used in trade of personal company

TCGA92/S157

Section 157 provides that a gain accruing to an individual on the disposal of qualifying assets may be rolled over into the cost of new qualifying assets where:

  1. both old and new assets are used only for the purposes of a qualifying activity carried on by the claimant’s personal company,

and

  1. both old and new assets are used only by the same personal company,

and

  1. the company is the claimant’s personal company at both the date of disposal of the old assets and the date of acquisition of the new assets.

Section 157 extends the scope of roll-over relief but all other conditions of relief apply in the same way as they would normally apply to old and new assets used in a trade carried on by the owner of the assets. The asset must be used, and in the case of land and buildings occupied, by the personal company only for the purposes of the trade carried on by it. Accordingly, relief is available to the individual even if rent is paid by the company to the individual for the use of the asset.

Definition

For the purpose of Section 157, in relation to disposals in the year 2003-04 and subsequent years of assessment, a company is an individual’s personal company if, both at the time of the disposal and the time of the acquisition, he holds no less than 5 per cent of the voting rights which are exercisable.

It is NOT a requirement for roll-over relief that the individual claimant is a director or employee of the company. The case of Boparan v HMRC (SpC 587) confirmed our view that an individual’s “personal company” is a company in which he is able to exercise 5 per cent of the voting rights.

Example

An individual disposes of a freehold factory which has been let throughout the period of ownership by the individual to a company in which the individual holds more than 5 per cent of the voting shares. The individual applies the whole of the disposal proceeds in acquiring a new freehold factory which is immediately taken into use for the purposes of the trade of the same company in which the individual continues to hold more than 5 per cent of the voting shares. Under Section 157, the gain on disposal of the first factory may be rolled over into the cost of acquisition of the second factory.

Two or more trades - TCGA92/S152 (8)

A gain on disposal of a qualifying asset used in a qualifying activity carried on by the claimant may not be rolled over into the cost of acquisition of a qualifying asset which is taken into use for the purposes of a qualifying activity carried on by the claimant’s personal company. In the context of a claim under Section 157, the two or more trades referred to in Section 152 (8) are those carried on by the personal company.

Groups of companies - TCGA92/S175

Section 175 applies only for the purposes of Corporation Tax. It does not apply for the purposes of Capital Gains Tax chargeable on an individual. Accordingly, Section 175 has no application in the context of a claim under Section 157 which is available only to individuals.