What is Rollover Relief and when does it apply? What are the conditions?
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This is a freeview 'At a glance' guide to Rollover Relief on the replacement of business assets.
At a glance
What is Rollover Relief?
Rollover Relief applies when trading assets are sold and new trading assets are purchased using the proceeds. It is available to both individuals and companies.
- A capital gain on the disposal of a trading asset can be deferred by rolling it over against the cost of another business asset.
- The Capital Gains Tax (CGT) cost of the new asset is reduced by the gain so that when the replacement asset is sold the gain comes back because of the reduced deductible cost.
For example: John sells Briar Cottage Tea Rooms for £400,000, making a gain of £100,000. He uses all of the proceeds to buy a gift shop and rolls over the gain. His CGT base cost for the shop is £300,000.
- Relief is restricted when the proceeds from the disposal of the first asset are not fully reinvested in the new one.
- The assets do not have to be of the same type but must be used, and only used, for the purposes of a trade.
- A company may deduct the indexation allowance (up to 31 December 2017) before rolling over its gains.
- Business Asset Disposal Relief (Entrepreneurs' Relief) (BADR) cannot be claimed on a gain before it is rolled over. If a full rollover is not possible, e.g. because not all proceeds are reinvested, a BADR claim may be made for the remaining gain where the BADR conditions are met.
- The relief applies to groups so that a gain made by one company can be rolled into the purchase of a qualifying asset by another group company, subject to certain conditions.
What are the qualifying conditions for Rollover Relief?
- There is a window during which the new asset(s) must be purchased: this starts 12 months before the disposal and ends three years after.
- Both assets must be used for the purposes of a trade.
- See CGT: Rollover Relief for when HMRC will extend the time limits and what to do when you intend to purchase a replacement asset but have not done so by the time you file your tax return.
- If you only use part of the sales proceeds to buy the new asset the relief is restricted.
- See CGT: Rollover relief for how to calculate the relief due.
- If the asset disposed of was only used partly for trade purposes, the proceeds are split between trade and non-trade use on a time apportionment basis. Periods before March 1982 can be ignored.
- The new asset must be brought into use in a trade as soon as it is acquired.
- HMRC will allow a short gap if improvements/alterations are needed to the new asset and it is not used for anything else in the meantime.
- A sole trader does not have to use the old and new assets in the same trade. See CGT: Rollover Relief for how HMRC view the situation where the assets are used in different trades.
What assets qualify for Rollover Relief?
- A building or part of a building or structure occupied and used for the purpose of a trade.
- Any land occupied, as well as used, for a trade.
- Fixed plant or machinery which does not form part of a building or structure.
- See CGT: Rollover Relief for other assets which may qualify for relief.
- There are special rules for Wasting assets that are normally exempt from CGT.
- Rollover does not apply to the disposal of shares and securities.
- See Furnished Holiday Lettings (FHL) for when rollover can apply to FHLs.
Group Rollover Relief
- A sale of an asset by a company when it is a member of a capital gains group, and a purchase by another company when it is a member of the same group can qualify for relief in some circumstances.
- See CGT: Rollover Relief for when relief can apply to group companies.
Assets held by individuals & used by partnerships and companies
An individual may claim Rollover Relief on assets they own personally which are:
- Used by their personal trading company.
- Used by a partnership in which they are a member.
See CGT: Rollover Relief for the conditions to be met here.
Should Rollover Relief be claimed?
Whilst Rollover Relief may seem attractive you should always consider whether deferring a gain is actually a good idea in practice.
In particular, it may not be beneficial where the disposal of the old asset qualifies for Business Asset Disposal Relief (Entrepreneurs' Relief) but the disposal of the new asset may not.
If it is very likely that you will hold the new asset until you die then rollover may be a good idea; see CGT: Rollover Relief for why.
Rollover Relief on compulsory acquisition: section 247 TCGA
This relief may be available when land is disposed of to an authority exercising compulsory purchase powers.
See CGT: Reliefs, disposal of a business or its assets for details of when rollover will apply in this situation and what the restrictions on relief are.
Useful guides on this topic
CGT: Reliefs, disposal of a business or its assets
Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company?
CGT: Rollover Relief
What is Rollover relief? When a capital gain is made on the disposal of a business asset, it is possible to defer the gain by rolling it over against the cost of acquiring a replacement business asset. What are the conditions for the relief? What is a business asset?
Business Asset Disposal Relief (Entrepreneurs' Relief)
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How do you claim BADR? What BADR case law is there?