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Ch#21, Paragrah 2( c ). You said when we reinvested on depreciating asset and on its disposal. The proceeds are used to reinvest again but this time on non-depreciating.
” When the…non-depreciating asset is purchased before the deferred gains crystalises, the original gain may be R/O againts new costs of non-dep asst and will only crystallise on sale of the non-depreciating asset ”
I didn’t understand that at all. I have heard u saying gains crystalised many time, but each time I’m confused what does that mean. Secondly which orignal costs u reffered to? Thirdly where the current gains deffered on depreciating asset will go?
It could have been so easier if you illustrated that with examples on coures note.
Many Thanks
I just read through the UK GOV tax official site, that the gain that arose on the first old asset for the first reinvested depreciating asset. The gain defers. When it get sold, then if reinvested on new non-depreciating asset. We can use it simple proceeds cost if it is gain or loss ( I heard saying u it makes loss usually ofcourse, as it is technological ). On this asset disposal we then take the earlier deffered tax to be chargeable now.
I think thats all!
Kindly do correct me if I am wrong!
Many Thanks
When we use the term crystallise it means when the gain will become taxable. The issue is a relatively small issue and if it were to be examined it would probably be only in written form and hence the explanatory note.
When a depreciating asset is purchased such as a 45 year leasehold property to replace a freehold property being sold the gain on the freehold cannot be rolled over against the base cost of the leasehold but is instead held over (deferred) awaiting the earlier of the 3 events listed.
If before the deferred gain became taxable a non depreciating asset was acquired, for example another freehold property was purchased, then the gain that had only be held over could now be rolled over against the freehold cost.
Freehold sold for £1M at a gain of £0.4M
Replaced with 45 year leasehold property costing £1.2M. As all the proceeds have been reinvested in a depreciating asset the gain is deferred awaiting the earlier of 3 events (max 10 years).
Freehold property costing more than £1M then acquired before the deferred gain becomes taxable. A claim may be made to take £0.4M gain held over and instead roll it over against the cost of the new freehold property. The gain will then only become taxable when that property is sold in the future without any further reinvestment then taking place.
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