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HMRC internal manual

Corporate Intangibles Research and Development Manual

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Reinvestment relief: computation: interaction with CG roll-over relief: hybrid claims: examples

To illustrate the rules described in CIRD20290

Example 1 - hybrid relief: proceeds fully reinvested

Assume that a company disposes of goodwill (which in this case is not a chargeable intangible asset within CTA09/Part 8) on 1 January 2003. The disposal proceeds are £100,000 and the capital gain £30,000. The company purchases land and buildings for £80,000 on 1 February 2002 and a patent (from an unrelated party) for £50,000 on 1 January 2004. It claims both CG roll-over relief and CTA09/PART 8 reinvestment relief.

The company must choose how to allocate the proceeds from the disposal between the two assets acquired. If, say, it allocates £80,000 to the land and buildings and £20,000 to the patent the gain the acquisition cost of the two assets is reduced in proportion.

Land and buildings  
   
Gain reinvested £80,000 / £100,000 x £30,000 = £24,000
Reduced acquisition cost £80,000 - £24,000 = £56,000
Patent  
Gain reinvested £20,000 / £100,000 x £30,000 = £6,000
Reduced acquisition cost £20,000 - £6,000 = £14,000

Example 2 - hybrid relief: proceeds only partly reinvested

Assume that the land and buildings in Example 1 cost £60,000 and £20,000 respectively so that the total expenditure on new assets is (in total) only £80,000.

As the total reinvestment stands at £80,000 out of the disposal proceeds of £100,000, the £20,000 not reinvested is deducted from the gain leaving £10,000 eligible for relief (see CIRD20240).

Again the company must allocate the proceeds between the two assets. If, say, it allocates £60,000 to the land and buildings and £20,000 to the patent the reduction in the gain and in the acquisition cost of the two assets is as below.

Land and buildings  
   
Gain reinvested £60,000 / £80,000 x £10,000 = £7,500
Reduced acquisition cost £60,000 - £7,500 = £52,500
Patent  
Gain reinvested: £20,000 / £80,000 x £10,000 = £2,500
Reduced acquisition cost £20,000 - £2,500 = £17,500