A Relief for Rollover
What do land, buildings, furnished holiday lets, goodwill, fixed plant and machinery, fish, milk and ewe and suckler cow premium quotas, farmers income support payment entitlements, Lloyds underwriters rights and assets, ships, aircraft, hovercrafts, satellites, spacecraft and space stations have in common?
If businesses use any these assets in their trade and subsequently dispose of them and make a gain chargeable either to capital gains tax or corporation tax, it may be possible to defer that gain. How so? By being ‘deemed’ to have reinvested all or some proceeds from the disposal into acquiring something of similar ilk which will also be used for the trade.
► Rudge Ltd sold land which they had used for part of their trading activity for £300,000 in May 2022, having originally bought it for £100,000. The gain of £200,000 is potentially liable to corporation tax.
► The company buys a factory for £400,000 in June 2024, which it will occupy and use for its business.
► As the factory costs are greater than the land sale proceeds and both assets have been used in the trade, Rudge Ltd can make a rollover relief election to defer the £200,000 gain until the subsequent sale of the factory.
► Rudge Ltd sells the factory in October 2029 for £700,000.
► The chargeable gain would then be £700K minus (£400K less the rolled over gain £200K) = £500K. This assumes that the £700K proceeds are not reinvested.
► If the factory had cost £95,000, no relief could be claimed as the proceeds are deemed not to have been reinvested (i.e. £300K – £95K = £205K), is greater than the gain of £200,000.
► If the new premises had cost £175,000, part of the gain(i.e.£300K – £175K = £75K) could be deferred. The remaining £125,000 would still be liable to corporation tax for the accounting period in which the land was sold.
a) If the asset is stock or the business is involved in dealing in or developing land or provides services to a third party occupying land which the business has an interest in, then, except in certain circumstances, rollover relief can’t be claimed.
b) Companies cannot normally claim rollover relief as regards intangible assets such as goodwill.
c) Normally the new asset needs to be acquired either within one year prior or three years post the disposal of the old one.
d) A provisional rollover relief election can be made at the time of the disposal of the first asset as long as there is an intention to reinvest the proceeds within the required legislative time frame. Once done then a finalised claim must be made, otherwise the tax comes back into play on the first disposal along with interest charges.
If the new asset is deemed to be a depreciating one, relief happens in a different way. Instead of the tax being deferred until you dispose of the new asset, it will be postponed until the earliest of:
a) When you dispose of the new asset.
b) When you stop using the new asset within your trade.
c) 10 years from when you acquired the new asset.
Please talk to us if you have or are contemplating disposing of an asset where rollover relief could possibly be claimed.