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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Chargeable gains: Roll-over relief

Non-depreciating asset becomes a tonnage tax asset

Types of gain rolled-over to which new rules apply

A gain may have been rolled over against the cost of an asset, which subsequently became a tonnage tax asset. For example:

  • a pre-entry gain may have been rolled over against the cost of an asset which became a tonnage tax asset at the time of entry into Tonnage Tax, or
  • a post-entry gain may have been rolled over against the cost of an asset which was (at the time) being used for the purposes of a company’s non-tonnage tax activities, but which was later brought into use for the purposes of the company’s tonnage tax activities.

Reasons for amendment to normal rules

Where a roll-over relief claim has been made, then (unless the new asset was a depreciating asset, see TTM08330) an amount equal to the amount of the gain will fall to be deducted from the base cost of the new asset (see CG60350).

Under the normal capital gains tax rules the gain which has been rolled-over will effectively crystallise when the new asset is itself disposed of, since the gain on the disposal of the replacement asset will effectively be increased by the amount rolled over.

But this would not be the case if the rolled-over gain were to be deducted from the base cost of a new asset that subsequently became a tonnage tax asset. A proportion of the gain arising on the disposal of such an asset is excluded from the charge to tax (by the time apportionment rule, see TTM08200). A proportion of the rolled over gain would therefore be effectively excluded from the charge to tax.

In order to ensure that the full amount of the rolled over gain is eventually brought into account for tax purposes, any roll-over relief which reduced the base cost of the new asset is withdrawn when the new asset becomes a tonnage tax asset. Relief is given, instead, by holding over the gain until the new asset is disposed of.

Special rules for non-depreciating assets

Where:

  • a roll-over relief claim has been made under TCGA92/S152 and S153, and
  • the ‘new asset’ is a non-depreciating asset, and
  • the ‘new asset’ subsequently becomes a tonnage tax asset;

then any relief that has previously been given is withdrawn by:

  • a reversal of any reduction in the consideration for disposal of Asset No.1, and
  • a corresponding reversal of any reduction of expenditure on the acquisition of Asset No. 2 (the ‘new asset’)

Instead, and to avoid an immediate charge to tax:

  • the previously rolled over gain is held over and will not become taxable until the replacement asset is disposed of.

Subsequently, the gain will be charged to Corporation Tax for the accounting period in which Asset No. 2 is disposed of, subject to the availability of any CGT losses at that time.

Normal ‘held-over’ gain rules do not apply

Although the gain is to be held over, the provisions relating to ‘held-over gains’ in TCGA92/S154 do not apply. In particular:

  • the held-over gain will only become chargeable on the disposal of the replacement asset, and
  • the gain may not be rolled over against any non-depreciating asset that may subsequently be acquired in accounting periods before the accounting period when Asset no. 2 is finally disposed of.

References

FA00/SCH22/PARA67 (roll-over relief for business assets) TTM17376
   
TCGA92/S152 (roll-over relief) CG60520