Article relevant to the tax year 2020/21
Rollover relief when buying a replacement asset
If you wish to know the basics of Capital Gains Tax and annual CGT annual allowances be sure to read this article first.
In order to benefit from the rollover relief to reduce capital gains tax the individual must:
– The replacement asset must be acquired within 12 months of the original sale
– The rollover relief must be claimed within
– – 1 previous year to disposal
– – 3 years post disposal of an asset
– The assets old and replacement assets must be used within your business
HMRC will extend these time limits if:
– you can demonstrate that you had a firm intention to acquire new assets within the time limit
– you were prevented from meeting the time limit by some fact or circumstance beyond your control
– after being prevented from meeting the time limit you acted as soon as you reasonably could
The types of activities that benefit from rollover relief to defer CGT
The following types of businesses will benefit from the CGT rollover relief:
– carrying on a business of furnished holiday lettings
– occupying commercial woodlands and managing them commercially to make a profit
– carrying on a profession, vocation, office or employment
– providing an asset to your personal company
– disposing of land by a compulsory purchase
If you let accommodation, you can treat it as a business of furnished holiday lettings if it meets the conditions set out on page UKPN 3 of the ‘UK property notes’.
Examples of rollover relief to minimise Capital Gains Tax
HMRC provides a nice example of rollover relief: You sell your shop for £75,000 and buy a new shop costing £90,000. If you claim relief you will not pay tax on the gains made on the sale of the old shop until you sell the new one.
You will still pay Capital Gains Tax If you buy a replacement asset/business that is less value than the asset sold. You sell your shop for £100,000 and buy a new shop for £90,000. The £10,000 may be taxable as it is less than the original asset proceeds.
You cease trading as a newsagent and sell your shop. Later you buy a grocer’s shop and start trading again. If your grocery trade began within 3 years of the end of your previous trade, you can defer the gain on the sale of your shop.
Download your buy to let tax guide here, written by our property accountants
Buy multiple properties form the same vendor to claim multiple dwellings relief to reduce Stamp Duty Land Tax
If you want to know more then please read our “buy to let tax tips for UK landlords” article
Partial claims of rollover relief to minimise Capital Gains Tax
You sell a building consisting of a shop together with a flat above for £160,000 and make a gain of £80,000. You’ve always traded from the shop, which is worth £120,000. You let the flat, which was worth £40,000. Only twelve-sixteenths (that is three-quarters) of the gain can be deferred. You can defer £60,000 of the gain if you acquire new assets costing £120,000 or more.
The types of assets that benefit from rollover relief to defer CGT
Not all assets will benefit from the rollover relief. The following assets will benefit:
– interests in buildings or parts of buildings
– interests in land
– fixed plant or machinery
– ships, aircraft, hovercraft, satellites, space stations and spacecraft
– milk, potato or ewe and suckler cow premium quotas
– fish quotas
– payment entitlements under the single payment scheme or basic payment scheme
– Lloyd’s syndicate capacities
Land and buildings must be occupied and used only for your trade.
Future purchases to claim rollover relief to defer CGT
You dispose of an old asset for £80,000, making a gain of £30,000. It is intend to reinvest only £60,000 in acquiring new assets. You can defer the tax on £10,000 of the gain. £20,000 of the disposal proceeds are not to be used to acquire new assets and so a gain of that amount is still charged to tax.