Capital Gains & Other Taxes Manual - Section 5 - Part 3

Previous PageSection Contents

On this page

Private Residence Relief

5.76 General

Roll Over Relief

5.77 General (ss.152-162)

5.78 Classes of Assets (s.155)

5.79 Wasting assets (s.154)

5.80 Part Only Reinvested

5.81 Time Limit

5.82 Apportionments (s.52(4) and s.152(11))

5.83 Different Trades

Retirement Relief

5.84 General

5.85 Amount of Relief

Hold-Over Relief

5.86 General (ss.165 and 260)

5.87 Qualifying Assets

5.88 Extent of Relief

Other Miscellaneous Exemptions

5.89 General

5.90 Trees Growing in Woodlands (s.250)

5.91 Charities (s.256 and s.257)

5.92 Superannuation Funds s.271(2)

5.93 Local Authorities (s.271(3))

5.94 Trade Unions, Friendly Societies, etc (s.459-467 ICTA 1988)

5.95 Diplomatic representatives and funds exempt from Income Tax (s.271(1))

5.96 Grants for giving up agricultural land (s.249)

5.97 Compensation to tenant farmers and business tenants

Part 3 : Exemptions and Reliefs

Private Residence Relief

5.76 General

Detailed instructions concerning Private Residence Relief are contained in Section 8.

Roll Over Relief

5.77 General (ss.152-162)

Persons carrying on a trade may claim to defer payment of CGT on gains arising from the sale of certain classes of business assets if the proceeds of sale are spent on acquiring new assets within these classes, exclusively for trade purposes. Instead of paying tax on the gain the trader may elect to have the amount of the chargeable gain deducted from the acquisition price of the new assets. The process may be repeated on subsequent sales providing new business assets are purchased. When, finally, the proceeds are not invested in new asset, the whole of the gain becomes chargeable. (See also 5.199).

5.78 Classes of Assets (s.155)

The relief applies to the following classes of asset namely land and buildings occupied (as well as used) only for the trade, fixed plant and machinery, ships, aircraft and hovercraft, goodwill, milk and potato quotas and ewe and suckler cow premium quotas. In the case of a dealer in or developer of land relief can only be claimed on land which forms part of the fixed assets of the trade. It should be noted that land and buildings thereon are regarded by virtue of s.155 TCGA 1992 as separate assets for roll-over relief and requests for apportionments may therefore be required by Inspectors. (See also 5.199).

5.79 Wasting assets (s.154)

Where the new asset is a wasting asset (see para 5.51 et seq) or will become so within 10 years, different provisions apply which broadly speaking limit the period of deferment to 10 years.

5.80 Part Only Reinvested

In general the relief does not apply if part only of the proceeds are invested in new assets. If however the amount not so invested is less than the gain on the disposal of the original asset, and in consequence part of the gain has been reinvested, that part of the gain which has been reinvested will qualify for relief.

5.81 Time Limit

For relief to apply new assets have to be purchased within the period beginning 12 months before and ending 3 years after the disposal of the old assets (or such other time as the Board may allow).

5.82 Apportionments (s.52(4) and s.152(11))

Apportionments will be made by the Inspector on a "just and reasonable" basis where either a building has been used in part only for business purposes or where the old assets were not used solely for business purposes throughout the whole period of ownership.

5.83 Different Trades

A person can roll over gains from assets used in one trade to purchase assets used in a completely different trade or location. (It should be noted that in this context "person" includes a company).

Retirement Relief

5.84 General

An individual who:-

  • has attained the age of 55, or
  • retires on ill health grounds below the age of 55

may be eligible for relief on the disposal of chargeable business assets (including goodwill) or shares in a personal company. (ss.163, 164 and Sch 6).

5.85 Amount of Relief

The amount of the relief is generally a percentage of the maximum relief. This relief is being phased out as set out in the table below. No relief is given for gains above £1 million

Year

Relief at 100%
Gain up to

Relief at 50%
Gain up to

1993 to 1999

£250,000.

£1 million

1999/2000

£200,000

£800,000

2000/2001

£150,000

£600,000

2001/2002

£100,000

£400,000

2002/2003

£50,000

£200,000

After 2003

Nil

Nil

Hold-Over Relief

5.86 General (ss.165 and 260)

For gifts on or after 14 March 1989 "hold over" relief as described at para 5.206 is available on the gift of certain 'qualifying assets' and is subject to the following conditions:-

  • application has to be made by both donor and donee (except in certain circumstances in which trustees are involved) and
  • the donor must be an individual or the trustee of a settlement
  • the donee must be resident or ordinarily resident in the UK and, unless the gift is of a business asset, must not be a company.
  • If the donee is a company it must not be controlled by non-residents.

5.87 Qualifying Assets

Hold-over relief is only available where the gift is one of the following:-

  • a gift of 'business assets'
  • a gift of assets on which there is an immediate charge to Inheritance Tax
  • a gift of assets out of an Accumulation and Maintenance trust on a child reaching a stipulated age
  • a gift of heritage property
  • a gift of assets to heritage maintenance funds
  • a gift for national purposes
  • a gift of assets to political parties
  • a gift of works of art.

'Business assets' are defined in s.165 and include:-

  • assets used for the purpose of a trade, profession or vocation carried on by the donor or the donor's personal company
  • agricultural property which would attract relief from Inheritance Tax under s.115 IHTA 1984
  • shares in an unlisted trading company or holding company of a trading group.

5.88 Extent of Relief

‘Gift’ covers any transaction other than a bargain at arm’s length. The donors chargeable gain and the recipients deemed acquisition cost are reduced by the held over gain, which in the case of outright gifts will be the chargeable gain which would otherwise have arisen (after deducting indexation allowance and retirement relief if appropriate). Where some consideration is given by the donee in excess of the donors allowable expenditure, the held over gain will be reduced by that excess.

Other Miscellaneous Exemptions

5.89 General

In addition to the annual exemption referred to in paragraph 5.5, the persons, assets or events shown below are also exempted from Capital Gains Tax.

5.90 Trees Growing in Woodlands (s.250)

The proceeds from the sale of trees and underwood grown in commercial woodlands are excluded from CGT. Proceeds received under an insurance policy in respect of damage or destruction are similar specifically excluded.

On the disposal of commercial woodlands so much of the consideration on disposal and the cost of acquisition as is attributable to the trees and underwood is excluded in computing the chargeable gain. DVs may therefore be requested to apportion the sale price and acquisition cost on the disposal of woodland as between the value of the timber and the value of the land. Such apportionments should be on a “just and reasonable” basis (s.52(4)).

5.91 Charities (s.256 and s.257)

Charities are exempt insofar as their Capital Gains are applied for charitable purposes. In order to prevent avoidance of tax, if property ceases to be subject to charitable trusts there is a deemed disposal and reacquisition by the trustees at market value. Any gain arising from this deemed disposal will not be regarded as having accrued to a charity.

Where assets are transferred to a charity as a gift, or for a consideration less than the allowable expenditure, the disposal is at no gain/no loss.

5.92 Superannuation Funds s.271(2)

Gains arising from the disposal of investments held by approved superannuation funds are exempt.

5.93 Local Authorities (s.271(3))

Local authorities (as defined in s.52 FA 1974) are exempt from Capital Gains Tax or Corporation Tax.

5.94 Trade Unions, Friendly Societies, etc (s.459-467 ICTA 1988)

The present Income Tax exemption which applies to certain friendly societies, scientific research associations and certain other bodies and to the part of a trade union’s investment income which is used for the provision of provident benefits is extended so as to grant exemption from Capital Gains Tax on chargeable gains.

5.95 Diplomatic representatives and funds exempt from Income Tax (s.271(1))

Exemption from Capital Gains Tax is given to diplomatic representatives, consular officials and certain other persons and also gains realised by the sale of certain funds which are themselves exempt from Income Tax.

5.96 Grants for giving up agricultural land (s.249)

Sums payable to an individual under s.27, Agriculture Act 1967, (grants for relinquishing occupation of uncommercial agricultural units) are disregarded.

5.97 Compensation to tenant farmers and business tenants

Compensation paid to a tenant displaced under the Agricultural Holdings Act 1986 or the Landlord and Tenant Act 1954 may be exempt if it arises purely from the statutory provisions.

Previous PageSection Contents