CG61976 - Roll-over relief on transfer of shares to Share Incentive Plan: replacement assets

Definition of Replacement Assets

Excluded Assets – Dwelling-houses

Excluded Assets – Shares Qualifying for EIS Relief

Time Limit for Reinvestment

Definition of Replacement Assets

To qualify for relief, the person making the disposal must acquire replacement assets, TCGA92/SCH7C/PARA3. These are assets which are:

  • chargeable assets in relation to the claimant at the time they are acquired

but are not

  • shares in, or debentures issued by, the company or any company which is in the same worldwide group as the company. The word ‘group’ uses the wider definition in TCGA92/S170 introduced by FA2000/SCH29.

An asset is a chargeable asset if a chargeable gain would arise on its disposal. This assumes that the person making the disposal is either resident in the UK or, if not, is carrying on a business in the UK through a branch or agency. An asset will not qualify as a replacement asset if any gain on its disposal would not be subject to Capital Gains Tax by virtue of any double taxation relief arrangements.

Excluded Assets – Dwelling-houses {#}

CG64200+ tells you about private residence relief generally. You should refer to that if you are in doubt whether a replacement asset would qualify or not.

The replacement asset will be treated as if it is not a chargeable asset in relation to the claimant if at the time of the claim it is:

  • an asset which qualifies for private residence relief,

or

  • an option to acquire a dwelling house or land, where the option has been exercised and the subject of the option has become the only or main residence of the claimant or of their spouse or civil partner

The replacement asset will be treated as if it is not a chargeable asset in relation to the claimant where after a claim has been made

  • although the replacement asset was a chargeable asset and a dwelling house when relief was claimed, there is a time when it becomes the only or main residence of the claimant or of their spouse or civil partner qualifying for private residence relief

or

  • where the replacement asset was a chargeable asset in the form of an option to acquire a dwelling house or land when relief was claimed, the option has been exercised and the dwelling house or land becomes the only or main residence of the claimant or of their spouse or civil partner qualifying for private residence relief.

Any gain arising as a result is treated as accruing at the time the dwelling house or land became the only or main residence of the claimant or of their spouse or civil partner qualifying for private residence relief and adjustments should be made accordingly.

Excluded Assets – Shares Qualifying for EIS Relief {#}

If the replacement asset is shares on which EIS income tax relief has been claimed

  • before a claim for this relief is made, the replacement asset will be treated as if it is not a chargeable asset in relation to the claimant and no roll-over relief is due

or

  • after a claim for this relief is made, the replacement asset will be treated as if it is not a chargeable asset in relation to the claimant from the time of its acquisition and adjustments should be made accordingly
Time Limit for Reinvestment

To qualify for relief, the replacement assets must be acquired within a specified period which runs from the date of disposal of the shares to the trustees of the Share Incentive Plan. The length of this period in any particular case depends on whether:

  • the trustees satisfied the 10% requirement, see CG61974, immediately after the disposal,

or

  • at some later time in the twelve month period beginning with the disposal.

If the trustees held a minimum 10 per cent stake immediately after the disposal, then the specified period runs for six months from the actual date of disposal.

If the trustees do not acquire a minimum 10 per cent stake until some later time in the twelve month period, then the specified period runs for six months from then. In certain circumstances, therefore, the claimant may have up to eighteen months to acquire a replacement asset.

Although the relief operates in a similar way to business asset roll-over relief, there are no provisions to allow an extension of the specified period for the acquisition of the replacement asset, nor for relief to be granted on a provisional basis. Any case where a replacement asset was acquired after the expiry of this period should be submitted to Capital Gains Technical Group before the claim is refused.