Rollover Relief
Applies to the disposal of business assets where the proceeds are used to purchase replacement business
assets.
Nature of Relief
The relief allows any Capital Gains Tax liability to be deferred until the new assets are sold by reducing the
base cost of the replacement assets by the amount of gain rolled over.
The relief is available to individuals and companies where the asset is used in the trade. This will include an
asset used in an individual’s trade or by a partnership of which they are a member or by their personal
company (i.e. a company in which the individual can exercise 5% of the voting rights).
The replacement assets do not necessarily have to be used in the same trade for a sole trader or
partnership but where the assets sold were used by the individual’s personal company the replacement
assets must also be used in the trade of that personal company.
Qualifying Assets
Qualifying assets include the following:
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Buildings or parts of buildings
Land
Fixed plant or machinery
Ships, aircraft and hovercraft
Goodwill
Milk quotas
Payment entitlement under the single payment scheme
Restricted Relief
If the assets being sold have only been used in the trade for part of the period of ownership or only part of
the asset has been used in the trade, the rollover relief will be restricted to the gain attributable to the
trading use accordingly.
Unlike for holdover relief the asset does not have to be in use for the purposes of the trade at the time of
disposal in order to obtain partial relief where it has been used for business purposes at some point.
In order to obtain full relief the full amount of the sale proceeds must be reinvested in replacement
business assets. Where only part of the proceeds are reinvested there will be a gain liable to charge on
disposal being the lower of the proceeds not reinvested and the actual chargeable gain i.e. if an asset is sold
for £100,000 with a gain of £25,000 and £90,000 is reinvested in a replacement asset there will still be a
chargeable gain of £10,000 (the unused proceeds) and £15,000 of the original gain (£25,000 - £10,000) will
be rolled over into the cost of the replacement asset. The base cost of the replacement asset for Capital
Gains tax purposes will then be £75,000 (£90,000 – £15,000).
It is the amount that is paid for replacement assets in the qualifying period that is important – it does not
have to be the same invoice that are received on the sale i.e. if a business asset is sold for £100,000 and the
tax payer uses that money to fund non-capital or private purchases they could then borrow £100,000 and
buy a replacement asset within 3 years of sale and still qualify for the relief.
Depreciating Assets
If the gain is rolled over into fixed plant and machinery with an expected life of 60 years or less this will be
classed as depreciating assets and the gain will be deferred until the earlier of the following:
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When the new assets are sold or
When the new assets cease to be used in the trade or
10 years from when the new assets were acquired
If a further non-depreciating asset is acquired before any of the above events arise a fresh claim can be
made to roll over the gain into that non-depreciating asset instead.
Time Period for Acquiring New Assets
The replacement assets must be acquired in the 12 months before or in the 36 months after the disposal of
the old assets. This time limit may be extended at the Revenue’s discretion where it can be demonstrated
that the taxpayer was actively looking for replacement assets and was prevented from meeting the time
limit by circumstances outside of their control.
Claiming the Relief
A claim for rollover relief must be made within 4 years of the later of:
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The end of the tax year or company accounting period in which the disposal takes place and
The end of the tax year or company accounting period in which the replacement assets are
acquired
Where a taxpayer intends to rollover a provisional rollover relief claim can be made. If a provisional claim
is made and it is subsequently withdrawn Capital Gains tax will be payable from the original due date with
interest charged accordingly.
www.davisons-uk.com
01769 572404
31 July 2017
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