COURSE: ACCA – TAXATION (TX)

Lecture Topic: Capital Gains Tax – Rollover Relief

1. How does this relief work

 Rollover relief allows a chargeable gain to be deferred (rolled over) where the disposal proceeds of the old
asset are reinvested in a new asset.

 The deferral is achieved as follows:

The chargeable gain (on the old asset) is not charged to tax in the year of the disposal, but is instead deducted
from the acquisition cost of the new asset.

The result of this is that the new asset will have a base cost for chargeable gains purposes of its purchase price
less the gain rolled over (on the old asset).

This has the effect of increasing any gain in the future on disposal of the replacement asset.

 Gains may be ‘rolled over’ any number of times and therefore tax liability on a gain will only arise when there is a
disposal without replacement.

2. Conditions
 Rollover relief can only be claimed if all the following conditions are satisfied.

(a) Both the old and new assets are used in the business.

(b) The old and the new asset both fall within one (but not necessarily the same one) of the following classes:

- Land and buildings occupied and used for trading purposes

- Fixed (immovable) plant and machinery
- Goodwill

(c) The new asset must be acquired within the period beginning one year before and ending three years after the
sale of the old asset.

(d) The new asset is brought into use in the trade on its acquisition (not necessarily immediately, but not after any
significant and unnecessary delay).

 The new asset can be used in a different trade from the old asset.

 A claim for relief must be made by the later of four years of the end of the tax year in which the disposal of the old
asset takes place and four years of the end of the tax year in which the new asset is acquired.

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3. Partial reinvestment of proceeds
(a) If all of the disposal proceeds from the sale of the old asset are reinvested in the new asset, then 100% rollover
relief is usually available.

(b) When the disposal proceeds of the old asset are not fully reinvested in the new asset, then the amount not re-
invested remains chargeable and the amount of gain which can be rolled over is correspondingly reduced (i.e. the
rollover relief is reduced by the amount of the proceeds that were not reinvested in the new asset).

(c) If the amount of proceeds not reinvested is greater than the chargeable gain, no rollover relief is available.

4. Non- business use

 If the asset disposed of was not used entirely for business purposes, then the gain relating to the non-business
usage does not qualify for rollover relief.

Rollover relief will only apply to the business part of the asset.

5. Depreciating Assets
 If the replacement asset acquired is a depreciating asset (i.e. with a predictable life of 60 years or less), then the
gain is not rolled over by reducing the cost of the new asset. Instead it is held over, i.e. not charged to tax now
but deferred until the earliest of these three events:

(a) Disposal of the replacement asset.

(b) The date the replacement asset ceases to be used in the trade.
(c) 10 years from the date of acquisition of the replacement asset.

 The only types of depreciating assets that you need to be aware of are fixed plant and machinery and short
leaseholds (≤ 50 years).

 If prior to crystallization a non-depreciating asset is bought then the original held over gain can now be rolled over
into the new non-depreciating asset, and the depreciating asset is effectively ignored.

 Note that the same restrictions apply as for normal rollover relief.

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Questions

1.
Patricia purchased a factory for £140,000 in June 2013 and sold it on 1 March 2023 for £240,000. She purchased a
replacement factory on 3 March 2023 for £250,000.

She sold the replacement factory on 14 August 2026 for £280,000 but did not purchase any new assets with the proceeds of
the sale.

Both assets were for use in her business, and rollover relief was available.

What are the capital gains implications for Patricia?

2.
Jarvis bought a factory in September 2006 for £610,000. In December 2022 he sold the factory for £750,000. He bought a
new factory in March 2023.

Both assets were for business use, and Jarvis claimed rollover relief.

(a) Calculate the chargeable gain if the replacement factory cost £700,000.

(b) What would be the chargeable gain if the new factory cost £590,000.

3.
Aom is in business as a sole trader. On 3 February 2023, she purchased a freehold factory for £168,000. Aom also owns
two freehold warehouses and wants to sell one of these during March 2023. The first warehouse was purchased on 20
March 2019 for £184,000 and can be sold for £213,000. The second warehouse was purchased on 18 July 2012 for
£113,000 and can be sold for £180,000.

All of the above buildings have been or will be used for business purposes by Aom. She will make a claim to roll over the
gain on whichever warehouse is sold against the cost of the factory.

Calculate the chargeable gain, if any, that will arise in the tax year 2022-23 if either: (1) the first or (2) the second
freehold warehouse is sold during March 2023. (4 marks)

4.
Willow sold a freehold factory on 8 November 2019 for £146,000 and this resulted in a chargeable gain of £74,000. The
factory was purchased on 15 January 2017.

Seventy-five (75%) of the factory had been used for business purposes by Willow as a sole trader, but the other 25% was
never used for business purposes. Willow purchased a new freehold factory on 10 November 2019 for £156,000.

Calculate the chargeable gain arising on the disposal in November 2019, and the base cost of the new factory.

5.
Rochester bought a factory for use in his business in June 2010 for £125,000. He sold it for £240,000 on 1 August 2015.

On 10 July 2015, Rochester bought some fixed plant and machinery to use in his business, costing £250,000. The plant &
machinery ceased to be used in the business in May 2020 and was eventually sold for £267,000 on 19 November 2021.

Show Rochester’s CGT position.