CIRD13060 - Core computational rules: taxable credits: revaluation of intangible assets: example

Calculation of taxable credit on revaluation: Example

Assume an intangible asset that has a fair value that can be determined by reference to an active market value was purchased for 拢1000 and amortised at 拢100 per annum. At the end of year 4 it had a carrying value of 拢600. It is then revalued to 拢1100 in the accounts and an accounting gain of 拢500 recognised.

As a result of a reinvestment relief claim (CIRD20000 onwards) its tax cost on acquisition was 拢800. The annual deductible debits have therefore been 拢80 (拢800 / 拢1000 x 拢100) rather than 拢100. The tax written down value at the end of year 4 is 拢800 - [4 x 拢80 = 拢360] = 拢480.

The taxable credit on the revaluation is the lesser of:

  • the accounting gain adjusted in the ratio which the tax value of the asset bore to the accounting value immediately before the revaluation, and
  • the total debits deducted for previous periods.

That is the lesser of:

  • 拢500 x 拢480 / 拢600 = 拢400, and
  • 4 x 拢80 = 拢320.

So the taxable credit is 拢320. The balance of the uplift (拢500 - 拢320 = 拢180) is disregarded.

See CIRD12790 for the computation of subsequent deductions for the amortisation or impairment of the asset.