Capital Gains Tax: What is Rollover Relief?

Capital Gains Tax (CGT) is payable when a chargeable asset is sold at a gain for more than it was purchased for. Typically, the tax is paid on the profit made. 

Chargeable assets include personal possessions which are worth more than £6,000, any property which is not your main home, shares (other than those held in a tax-free scheme or investment), and business assets.

Depending on the asset, you may be able to reduce or delay the tax you pay by claiming a relief such as Business Asset Rollover Relief. 

What is Business Asset Rollover Relief?

Business Asset Roll-over Relief lets you defer any Capital Gains Tax (CGT) due when you dispose of certain assets (called ‘old assets’). If you acquire other assets (called ‘new assets’) costing the same as, or more than, the amount you got when you disposed of the old assets, the relief allows you to postpone paying tax until you dispose of those new assets.

Example 1

You sell your premises for £75,000 and buy new premises costing £90,000. If you claim relief, you will not pay tax on the gains made on the sale of the old premises until you sell the new one. 

If you acquire new assets for less than the amount you got on the disposal of the old assets, you may get partial relief.

Example 2 

You sell your premises for £100,000 and buy new premises for £90,000. If you’ve made a gain, you may still have some tax to pay but you may get some relief. 

Rollover relief can be claimed by both individuals and companies within a period commencing one year before and ending three years after the disposal. 

Under this relief the allowable cost of acquisition and any other expenditure of the new asset is reduced by the amount of gain on the old asset. Therefore, when the new asset is eventually sold two sets of capital gains will come into charge.

The new asset being purchased does not have to be the same as the asset that was disposed of but must only be used for business purposes. For example, it could be that the proceeds from the disposal of a property are put towards the purchase of new van.

There is no requirement to invest the actual sale proceeds into the asset purchase so long as an amount equal to the sale proceeds is used. If only part of the sale proceeds is used, the unused part is taxable immediately. 

Provisional Claims

HMRC may allow provisional relief where the original asset has been sold and the trader plans to reinvest the proceeds in a new asset but has not yet done so.  When the reinvestment does take place, the actual claim replaces the provisional claim.  If the reinvestment does not take place within three years from 31 January following the tax year of disposal the provisional relief will be cancelled. 

Calculating Capital Gains Tax and determining your eligibility for the reliefs available can be complex. If you need advice, get help from your accountant.

Growing businesses need more from their accountant; as business accountants, analysts and advisors, we help you understand and manage your numbers to drive plans and decision making. If you would like to discuss the ways we can help you and your business, simply call 0800 112 0880 or email [email protected].

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