Where the expenditure on the replacement assets is at least
equal to the realisation proceeds of the old asset the amount
available for reinvestment relief is the excess of the proceeds
over the cost recognised for tax purposes of the old asset.
The realisation proceeds for this purpose are as defined
CIRD13210, which is net of the
incidental costs of realisation.
That cost of the asset is the capitalised expenditure on the
asset that has been recognised for tax purposes (see
CIRD12720). That amount is
not reduced by any sums written off the asset
under the rules described in
CIRD12700 onwards. But it
is reduced by sums set off against the proceeds on
any previous part realisations of the asset. See Example 3 in
CIRD20235.
The fact that no formal balance sheet was drawn up during the period in which the asset was held does not prevent the acquisition cost from being regarded as capitalised expenditure for reinvestment relief purposes if, on the assumption that a balance sheet had been drawn up during that period, the asset would have appeared in it. Compare CIRD20120 where replacement assets are realised before they can appear in a formal balance sheet.
Assume an asset is purchased for £100 and sold for
£120 (net of incidental costs) when its tax value (and value
in the accounts) is £30. There is a realisation credit under
Schedule 29 (see
CIRD13250) of £90 (realisation
proceeds £120 - tax written down value £30). Expenditure
on replacement assets is £130.
Since that expenditure exceeds the realisation proceeds the
amount available for relief is the amount by which the realisation
proceeds (£120) exceeds the cost of the old asset (£100),
which is £20.
