Taxation of Chargeable Gains Act 1992 section 43

Assets derived from other assets

Section 43 deals with how allowable expenditure is allocated when the value of one asset is derived from another asset in the same ownership, following a merger, division, or change in the nature of assets, or the creation or extinction of rights or interests in assets.

• When assets are merged, divided, or change their nature — or when rights or interests in assets are created or extinguished — the allowable costs must be traced from the original asset to any asset whose value is derived from it
• An appropriate proportion of the original acquisition and enhancement costs (as defined in section 38(1)(a) and (b)) is attributed to the derived asset
• This reallocation of costs affects the gain computation both on a disposal of the derived asset and, if the original asset still exists, on a future disposal of that original asset
• The provision only applies where the value of the new or changed asset genuinely derives from the other asset — a mere economic connection is not sufficient, as illustrated by the Aberdeen Construction Group case