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To illustrate the rules described in CIRD20230

Example 1

Assume an asset with a cost for tax purposes of 拢100 is partly realised for 拢90 at a time when its accounting value immediately prior to the realisation was 拢50 and immediately afterwards 拢40.

The proceeds (拢90) are less than the full original cost of the asset (拢100) in this example; so no relief would be due under the rule described in CIRD20220. But since there has only been a part realisation of the asset, the proceeds need only exceed a proportion of the cost of the asset. That proportion is arrived at by multiplying 拢100 (the full cost) by 拢10 (拢50 - 拢40 - the reduction in accounting value) divided by 拢50 (the previous accounting value). The proportion of the cost of the realised asset to be taken into account on a reinvestment relief claim is therefore 拢20.

Subject therefore to the other conditions governing the relief:

• where the expenditure on new assets is at least 拢90 (the proceeds), full reinvestment relief will be due, or
• where the expenditure on replacement assets is less than 拢90 but more than 拢20, say 拢60, partial relief will be due. Thus the relief will be the difference between that expenditure (拢60) and the cost of the part of the asset realised, as adjusted, (拢20); that is 拢40.

Example 2

Assume now that the asset remaining in the example above is partially realised for 拢60 at a time when its accounting value immediately before was 拢30 and that its accounting value afterwards was 拢15. The computation of the cost of the asset for the purpose ofreinvestment relief is as follows.

The first stage is to reduce the full original cost of the asset (拢100) by the proportion of that cost referable to the previous part realisation that is by 拢20. So the original cost becomes 拢80 (拢100 - 拢20). This reduction needs to be made whether reinvestment relief was granted on the earlier transaction or not.

The second stage is to calculate a proportion of the reduced original cost using the accounting values at the time of this second part realisation. So the revised original cost is multiplied by the reduction in the accounting value (拢30 - 拢15) divided by the accounting value prior to the reduction (拢30). That is 拢15 (拢30 - 拢15) / 拢30 x 拢80 =拢40. Reinvestment relief is therefore available by reference to an original cost of 拢40 in a similar way to that in Example 1.

Example 3

If the remainder of the asset in examples 1 and 2 is subsequently realised completely the cost of the asset for the purpose of reinvestment relief on that realisation is its original cost (拢100) minus the aggregate of the amounts identified by the application of the formula on the two earlier part realisations. The reduction on the first part realisation was 拢20. That on the second was 拢40. So the cost of the asset for this purposes is 拢100 - (拢20 + 拢40) = 拢40.

Again, the reduction is made regardless of whether reinvestment relief was granted on the earlier part realisations.