This is an at a glance guide to Rollover relief on the replacement of business assets. Subscribers see here for your detailed guide. 

At a glance

What is Rollover Relief?

Rollover relief applies when trading assets are sold and new 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 cost of the new asset is reduced by the gain so when that 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 the trade:
  • A company may deduct the indexation allowance (up to 31 December 2017) before rolling over its gains.
  • Entrepreneurs' Relief (ER) cannot be claimed on a gain before it is rolled over. If full rollover is not possible (e.g. not all proceeds are reinvested) an ER claim may be made for the remaining gain.
  • 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?

  • Both assets must be used for the purposes of a trade.
  • There is a window during which the new asset(s) must be purchased; this starts 12 months before the disposal and ends 3 years after.
    • HMRC will extend the time limits in exceptional circumstances.
    • Where you intend to purchase a replacement asset but have not done so by the time you file your tax return, a provisional roll-over relief claim can be made. 
  • If you only use part of the sales proceeds to buy the new asset the relief is restricted, provided that the amount you do not reinvest is less than the gain.

For example: John sells his Tea Rooms for £400,000, making a gain of £150,000. He buys a small hotel for £300,000, leaving £100,000 in the bank. As £100,000 is less than his gain of £150,000, he can roll-over £50,000 of his gain (£150,000 - £100,000). His CGT base cost for the hotel is £250,000.

  • 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 here. Non-trade use might be private use.
  • 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. If they are used in different trades, HMRC say there must not be a gap between the trades of more than 3 years.

What assets qualify for roll-over relief?

  • A building or part of a building or structure occupied (as well as 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.
  • Ships, aircraft, hovercraft, space stations and space vehicles
  • Goodwill *
  • Various faming quotas, Single Farm Payment (SFP) and Basic Payment Scheme (BPS) entitlements.

*The relief does not apply to intangibles falling within the FA 2002 Intangibles Regime (though that regime has similar rules).

  • There are special rules for wasting assets which are normally exempt from CGT.
  • Roll-over does not apply to the disposal of shares and securities.
  • The relief does apply to the disposal of assets which are furnished holiday lettings (FHL).

Group rollover relief

  • A sale of an asset by a company when it is a member of a capital gains tax group, and a purchase by another company when it is a member of the same group can qualify for relief.
  • Both companies need to claim the relief.
  • The companies do not need to be members of the same group throughout, only at the time of each company's own relevant transaction (sale or purchase).

Assets held by individuals & used by partnerships and companies

An individual may claim roll-over relief on assets he owns which are:

  • Used by his personal trading company (provided that he owns 5% of the share capital).
  • Used by a partnership in which he is a member.

For assets used by an individual's personal company, the new asset has to be used by the same company as the old asset.

Should roll-over relief be claimed?

Whilst roll-over relief may seem attractive you should always consider whether deferring a gain is actually a good idea in practice. 

In particular, it won't be beneficial where the disposal of the old asset qualifies for 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 as the deferred gain disappears via the capital gains free tax uplift on death, with the person inheriting the asset acquiring it at market value and the deferred gain never coming back to be taxed.

Roll-over relief on compulsory acquisition - section 247

This relief is available when land is disposed of to an authority exercising compulsory purchase powers.

  • The landowner must not have been actively looking for a sale or showing a willingness to sell.
  • The consideration received for the disposal must be reinvested in other land in the period commencing 12 months before and ending 3 years after the disposal.
  • No relief if private residence relief will be claimed for the first 6 years of ownership.

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