Taxes Consolidation Act 1997 section 559

Assets derived from other assets

Section 559 provides for the apportionment of allowable expenditure where the value of an asset is derived from another asset in the same ownership, for example through the merging, division or change of nature of assets, or the creation or extinguishment of rights or interests in or over assets.

• Where an asset's value is derived from another asset in the same ownership — through merging, division, change of nature, or the creation or extinguishment of rights — an appropriate proportion of the allowable expenditure on the original asset is attributed to the derived asset.
• The apportionment is made by reference to the consideration received for the assets disposed of and the market value of the assets retained, both measured at the time of disposal.
• The fraction of original expenditure attributed to the derived asset is: consideration received ÷ (consideration received + market value of the retained asset).
• The rule applies, for example, to shares acquired under a rights issue or as bonus shares, which are derived from the original shares, so that the cost of the original shares is apportioned on any disposal of the rights or shares.