Rollover relief

Replacement of business asset relief

Rollover relief (ROR) allows the gain arising on the disposal of a qualifying business asset to be rolled over (i.e deferred) when the sale proceeds are reinvested in a qualifying replacement asset within a qualifying time period.

This relief is both available to individuals and companies.

For individuals  

The relief:

• The gain arising on the disposal of the qualifying business asset is deducted from (rolled over against) the purchase cost of the replacement asset.
• Provided the net sale proceeds are fully re-invested, no tax is payable at the time of the disposal.
• ROR effectively increases the gain arising on the disposal of the replacement asset, as its base cost is reduced by the amount of gain rolled over.
• Gains may be ‘rolled over’ a number of times such that tax liability will only arise when there is disposal without replacement.
• When the deferred gain crystallises, it’s taxed at that time (not the rate applicable at the time of the deferral).
• The relief is not automatic, it must be claimed.
• An individual must claim the relief within 4 years of the later of the end of the tax year in which the:
• Disposal is made, and
• Replacement asset is bought.
• Disposal in the tax year 2020/21, which is reinvested in a new asset in the tax year 2021/22, requires a claim by 5^th April 2026.

Conditions:

Qualifying business assets:

• Goodwill
• Land and buildings
• Fixed plant and machinery (immovable)

Both the old and the replacement assets must be qualifying business assets.

Qualifying time-period:

The replacement assets must be purchased within a period:

• Beginning one year before, and
• Ending three years after the date of the sale of the old asset

Example:

Joe Bloggs purchased an asset qualifying for ROR in Jan 2002 for £160,000. In August 2020, he sold the asset for £180,000 and spent £200,000 in November 2020 on a new qualifying asset.

Gain on disposal of the asset:

Sales proceeds	180,000
Less: Cost	(160,000)
Gain	20,000
Less: ROR (deferred gain)	(20,000)
Chargeable gain	0

Base cost of new asset:

Acquisition cost	200,000
Less: ROR (deferred gain)	(20,000)
Revised base cost	180,000

For companies:

Rollover relief (ROR) for companies operates, in general, in the same way as for individuals, as summarised below:

• ROR allows a company to replace assets used in its trade, without incurring a corporation tax liability on the related chargeable gains.
• The gain arising on the disposal of the business asset is deducted from (rolled over against), the acquisition cost of the new asset.
• Provided the proceeds are fully re-invested, no tax is payable at the time of the disposal.
• Purchase of the replacement asset must occur during a period that begins one year before the sale of the old asset and ends three years after the sale.
• If re-invested in a depreciating asset (<60 years useful life), the chargeable gain is deferred until the earliest of:
• Disposal of the depreciating asset
• Depreciating the asset ceases to be used for trading purposes.
• 10 years after the depreciating asset was acquired.

Key differences:

• Goodwill is not a qualifying asset for companies
• The gain deferred is the ‘indexed gain’ (i.e the gain after IA).
• The claim must be made within four years of the later of the end of the accounting period in which the asset is
• Sold, and
• Replaced.

Please note there are different rules where the sales proceeds are not fully reinvested.

If you would like some more information on rollover relief, please give us a ring on 01273 441 187 or email info@peterjarman.com
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