CG60270 - Reliefs: Replacement of Business Assets (Roll-over Relief): Basic Conditions

Under section 152(1), the key conditions for the relief are that:

• 1)  the old assets are within one of the classes listed in CG60280 and have been used solely for the purposes of the trade throughout the period of ownership, and
• 2)  the whole of the consideration obtained for the disposal is applied in acquiring new assets within one of the classes listed in CG60280 which are, on the acquisition taken into use wholly for the purposes of the trade.

Meaning of Applying Consideration

Deemed Consideration

Meaning of ‘on the acquisition are taken into use’

Meaning of Applying Consideration

Except where extension of the time limit in Section 152 (3) is requested, it is not necessary to establish a link between the disposal proceeds and their application. To do so would deny relief in almost every case because:

• where acquisition precedes disposal, it would never be possible to show that the consideration for disposal of the old assets was applied in acquiring the new assets; and
• in almost every other case, the consideration for disposal of the old assets will be applied, initially, to some other purpose such as the acquisition of a debt upon lodgement of the funds into a bank account.

If the investment in new assets is made within the statutory time limit, there is a presumption that the disposal consideration was wholly applied in acquiring the new assets included in the claim. This is so except to the extent that the total consideration for disposal of the old assets in the claim exceeds the total cost of acquisition of the new assets in the claim. No account need be taken of, for example, loans outstanding in respect of the old assets or raised in respect of the new assets.

A simple comparison should be made between the net consideration for disposal (after deduction of disposal expenses) and the cost of acquisition (including incidental expenses). The case of (74TC499) establishes that the amount or value of the consideration given for acquisition of the new assets is the amount before any reduction under TCGA92/S50 (see CG15288+).

As an example, on 1 January 2016 Aidan sells land for £150,000. The expenses of sale are £5,000. On 1 October 2018 the farmer buys land for use in the trade at a cost of £145,000 plus expenses of £4,000. To fund the purchase, Aidan raises a mortgage of £100,000. For the purposes of a claim under Section 152, the disposal consideration is £145,000 and the amount applied in acquiring new assets is £149,000. Full relief is therefore due.

Deemed Consideration

TCGA92/S152(10) ensures that provisions which fix the amount of consideration deemed to be given for acquisition or disposal of an asset are to be applied before computing roll-over relief. For example, where the transaction is between connected persons, the consideration is deemed to be the market value of the asset. Similarly, where the transaction is between members of a group of companies, the consideration is deemed to be such an amount as will give neither a gain nor a loss to the person making the disposal. The gain or cost of acquisition should first be computed in the normal way and then the provisions of roll-over relief should be applied.

Relief may be due, if the other conditions are met, if a qualifying asset is deemed to be disposed of or deemed to be acquired. For example, gains accruing from the deemed disposal of qualifying assets under the following provisions can be rolled over

• TCGA92/S22 when a capital sum is derived from an asset
• TCGA92/S161 when an asset is appropriated to trading stock.

Similarly a deemed acquisition of a qualifying asset, for example under TCGA92/S62 when a person acquires an asset as a legatee, can be part of a claim to roll-over relief.

Meaning of ‘on the acquisition are taken into use’

TCGA92/S152 (1) requires the new asset to be `on the acquisition ..... taken into use' for the purpose of the trade etc. In the High Court decision in Campbell Connelly & Co Ltd v Barnett (66TC380) Knox J. commented that

`Although it leads to difficulties in reconciling TCGA92/S27 [now TCGA92/S28] and Section 115 [now Section 152], it seems to me that there is enough internal evidence in Section 115 to lead to the conclusion that the acquisitions being aimed at are completed acquisitions, not ones which still lie in contract.'

The asset must be taken into use at the time that any contracts are completed by conveyance or delivery and possession has been obtained.

If the asset is ready for use when possession is obtained, it must be taken into qualifying use without delay. The asset may, however, need minor alterations or adaptations or the claimant may need, for example, to obtain stock or to engage staff before the asset can be taken into use. Relief should not be denied solely on the grounds that the asset has not been brought into use as soon as it is acquired, provided that it is brought into use as soon as is practicable after the acquisition and without unnecessary delay.

The question is to be decided on the facts and circumstances of the case taking account of the nature of the trade and the asset concerned. In most cases, it is expected the interval will be short.

For example, taking over a public house but not opening until after the next licensing court may be acceptable but taking over a hotel as a going concern in May but not opening until October would be unacceptable (unless the hotel is, for example, in a ski resort and the main season is in the winter).

The interval may be longer but still acceptable if the trade is a seasonal one. If the asset is acquired after the end of the season but is not taken into use until the beginning of the new season, the delay may be acceptable. Examples might include an aircraft used for crop spraying or an ice cream kiosk in a seaside resort.

The decision of the Special Commissioners in (SpC 57/95) is a useful example. At the time the Special Commissioners decisions were not legally binding precedent, but it illustrates our view that the acquisition and the taking into use must be reasonably proximate to one another. The asset may not be capable of being taken into use immediately but the claimant must not be dilatory.

Where qualifying assets are not taken into use on their acquisition, ESC D24 provides that they may be treated so if:

• capital expenditure is incurred on enhancing the value of the asset; and
• the improvement works begin as soon as practicable after acquisition and are completed within a reasonable period; and
• the asset is taken into use (and in the case of land or buildings, occupied) only for the purposes of the trade as soon as is practically possible after completion of the work; and
• the asset is neither let nor used for any non-trading purpose in the period between acquisition and taking into use for trade purposes.

This interpretation of the statutory wording "which on the acquisition are taken into use" in TCGA92/152(1) was given judicial approval by Sir Richard Scott in Steibelt v Paling [1999] STC 594 when he commented "I regard D24 as being a very sensible attempt by the Revenue to indicate how it believes the language of the 1992 Act in this regard should be applied."

Accordingly, we will continue to draw on the interpretation as set out in ESC D24 where appropriate, whilst acknowledging Sir Richard's Scott's conclusion that ESC D24 is not strictly a concession.

For both newly constructed assets and improvements to existing assets, the date of acquisition may be taken as the date on which the asset or the works are completed and ready for use.