Business asset rollover relief allows you to defer the capital gains tax payable where there is a gain on the disposal of business, if the proceeds are reinvested (rolled-over) in buying replacement assets. The tax bill is delayed until the new assets are sold.
For business rollover relief to be available, certain conditions must be met. The new assets must be purchased within three years of the sale of the old asset. The relief is also available if the new asset is purchased up to one year before. This is helpful where the business is replacing a key business asset and needs to buy the replacement asset before it can get rid of the old one. In addition, the business must be trading when both the old asset is sold and the new asset is purchased and both the old asset and the new asset must be used in the business. Business asset rollover relief is also available if you a running a furnished holiday lettings business.
Relief is available for a wide range of assets. Both the old and the new asset must be on the following list:
- interests in buildings or parts of buildings;
- interests in land;
- fixed plant and machinery;
- ships, aircraft, hovercraft, satellites, space stations and space crafts;
- milk, potato, ewe or suckler cow premium quotas;
- fish quotas;
- payment entitlements under the single payment scheme; or
- Lloyd’s syndicate capacities.
Nature of the relief
The relief works by reducing the base cost of the new asset by the rolled over gain. The effect of this is to delay the tax on the gain of the old asset until the sale of the new asset. The gain on the sale of the new asset will effectively comprise the gain on the old asset plus the gain on the new asset.
Harry buys a shop for £200,000. Ten years later he sells it for £300,000, reinvesting the proceeds in a new shop which costs £350,000. He claims business rollover relief. Five years later he sells the new shop for £425,000.
The gain on the sale of the first shop is £100,000 (£300,000 - £200,000). As he claims business asset rollover relief, this is not immediately taxable. Instead the base cost of the new shop is reduced by the rolled over gain. The base cost of the new shop is therefore £250,000 (actual cost of £350,000 less than rolled over gain of £100,000). When the new shop is sold, the chargeable gain of £175,000 (£425,000 - £250,000) is taxable. This is effectively the gain of £75,000 on the new shop (£425,000 - £350,000) plus the rolled over gain (of £100,000) on the old shop.
Partial relief may be available where only some of the proceeds are reinvested in the new asset or where the old assets were only partly used in the business. Partial relief is also available where the proceeds are reinvested in depreciating assets.
Making a claim
The relief must be claimed by filling in the form at the end of HMRC Helpsheet HS290 and submitting it with your self-assessment return.
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