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News & Portal: HMRC

Business Asset Roll-over Relief

25 June 2020  
Posted by: HMRC
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Helpsheet Updated 19 June 2020 by HMRC

Contents
  1. What is Business Asset Roll-over Relief
  2. Getting relief
  3. Traders
  4. Furnished holiday lettings
  5. Your personal company
  6. Getting relief for the assets you’ve disposed of
  7. Occupation of land and buildings
  8. Fixed plant and machinery
  9. Improvements
  10. Buying to make a gain
  11. Partial relief
  12. Depreciating assets
  13. Compulsorily purchased land
  14. Period for reinvestment
  15. Assets not brought immediately into business use
  16. Relief available
  17. What is the claim time limit
  18. How to claim relief
  19. Provisional relief 

 

This helpsheet gives you information to help you claim Business Asset Roll-over Relief. But it’s only an introduction. If you’re in any doubt about your circumstances you should ask your tax adviser. HMRC will also be pleased to help. You can also consult the Capital Gains Tax Manual which explains the rules in more detail.

 

What is Business Asset Roll-over Relief

Business Asset Roll-over Relief lets you defer any Capital Gains Tax (CGT) due when you dispose of certain assets (called ‘old assets’). If you acquire other assets (called ‘new assets’) costing the same as, or more than, the amount you got when you disposed of the old assets, the relief allows you to postpone paying tax until you dispose of those new assets.

Example 1

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.

If you acquire new assets for less than the amount you got on the disposal of the old assets, you may get partial relief.

Example 2

You sell your shop for £100,000 and buy a new shop for £90,000. If you’ve made a gain, you may still have some tax to pay but you may get some relief.

You may get a similar relief if you’ve land which is compulsorily purchased and you buy new land. You will not pay tax until you dispose of the new land. There is a system of provisional relief. This system allows you to get provisional relief on any gains you make on the disposal of an old asset if you declare an intention to acquire a new asset and claim relief. More details are in the ‘Provisional relief’ section.

 

Getting relief

You can claim relief if you’re:

  • trading
  • 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

 

Traders

If you’re a trader you can claim relief if you use the old and new assets in:

  • the same trade
  • another trade that you carry on at the same time or shortly after you’ve ceased the first trade

HMRC will accept claims to relief where there is a gap of 3 years or less between one trade ending and another beginning.

Example 3

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.

HMRC will treat the other activities listed above as if they were trades except for when you provide an asset to your personal company (see below). So, for example, you can claim relief when you sell an asset you’ve used in a trade and buy a new asset that you will use in an employment. If you’re not resident in the UK but are carrying on a trade here through a permanent establishment, you can only claim relief when you acquire new assets for that permanent establishment.

 

Furnished holiday lettings

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’.

 

Your personal company

Your personal company is any company in which you can exercise 5% or more of the voting rights. You can claim relief if you dispose of assets that you’ve provided for your personal company and that have been used in its trade. The new assets you acquire must also be provided to be used in the trade of that personal company.

 

Getting relief for the assets you’ve disposed of

Both the old assets you’ve disposed of and the new ones you’ve acquired must be:

  • interests in buildings or parts of buildings
  • interests in land
  • fixed plant or machinery
  • ships, aircraft, hovercraft, satellites, space stations and spacecraft
  • goodwill
  • 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

Non-Residents Disposing of an Interest in UK Land

Where a non-resident wishes to claim roll-over relief in respect of a disposal of an interest in UK land (see HS307 Non-Resident Capital Gains (NRCG) on direct and indirect disposals of interests in UK land and property), the replacement asset must also be an interest in UK land.

 

Occupation of land and buildings

Land and buildings must be occupied and used only for your trade if you wish to claim relief. If the land or buildings have been provided by you for use by your personal company, it’s that company which must occupy and use them.

 

Fixed plant and machinery

This means plant and machinery which is fixed in a particular location. For example, you can get relief when you dispose of a printing press but not when you dispose of a lorry.

 

Improvements

You can treat any money you spend on improving assets which you already own as if it were spent on acquiring new assets (except in certain cases where land is compulsorily purchased).

 

Buying to make a gain

If you’ve acquired the new assets to make a profit by selling them, you will not be allowed relief.

 

Partial relief

You can only claim partial relief if:

  • the old assets have only been used in your trade for part of the time you’ve owned them
  • only part of a building or structure comprising either the old or the new assets has been used, or will be used, in your trade

Examples 4 and 5 below illustrate the amount of relief you will get.

Example 4

You sell a shop for £100,000 and make a gain of £20,000. You owned the shop for 10 years and traded from it for 5 years. It was let for the other 5 years. Only five-tenths (5 years of trade and 10 years of ownership) of the gain can be deferred and to claim that deferral you must acquire new assets costing £50,000 or more.

Example 5

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.

 

Depreciating assets

If the new assets are depreciating assets you will get relief by a different method. Instead of your tax being deferred until you dispose of the new assets, it will be deferred until the earliest of the following:

  • when you dispose of the new assets
  • when you cease to use the new assets in your trade
  • 10 years from when you acquired the new assets

A depreciating asset is any fixed plant or machinery or any asset which will have a predictable life of 60 years or less from when you acquired it.

Example 6

You sell a shop and use the proceeds to buy fixed plant and machinery on 1 June 2019.

You can claim to defer the gain on the shop until the earliest of:

  • the date you sell the plant and machinery
  • the date you stop using the plant and machinery in your trade
  • 1 June 2029

If you acquire an additional asset which is not a depreciating asset during the period in which your tax is deferred, you can make an additional claim to relief. You can defer your tax until this additional asset is disposed of.

Example 7

You sell an asset in 2019 and make a gain. You buy a new depreciating asset in 2020 and use it in your trade. The gain you made in 2019 will be deferred until 2030 at the latest. If you buy a new non-depreciating asset in 2026, you can defer the 2019 gain until you dispose of that new non-depreciating asset.

For the purposes of roll-over relief land and buildings on land are treated as separate assets but can interact with each other.

Example 8

You sell an asset in 2019 and make a gain. You acquire a piece of land on a 25-year lease and build a factory on it in 2020. The land is a depreciating asset so the factory is also deemed to be a depreciating asset. You can therefore defer the gain in respect of the land, the factory or both.

Example 9

You sell an asset in 2019 and make a gain. You purchase a piece of freehold land and build a factory on it in 2020 with an expected life of 35 years. The factory is a depreciating asset whereas the land is not. You can therefore roll-over the gain into the land or defer the gain in respect of the factory or a combination of the two.

 

Compulsorily purchased land

If you were the owner of land which was compulsorily purchased, you can defer your tax on that disposal by acquiring new land. There’s no limitation on how the old or the new land is to be used except the new land must not contain a dwelling house for which you would be entitled to Private Residence Relief if you were to dispose of it, either:

  • when you acquire it
  • within 6 years after you acquire it

You will not get relief if you’ve previously advertised your willingness to dispose of the land.

Example 10

Your local authority compulsorily purchases a house you own and have let. You receive compensation of £150,000. If you use the money to acquire a new house which will be let, you can defer the gain until you dispose of the new house.

 

Period for reinvestment

You must acquire the new asset(s), or enter into an unconditional contract for the acquisition of the new asset(s), in the 12 months before, or 36 months after the disposal of the old asset(s). 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

Example 11

You sell a shop in August 2019 and make a gain. To defer the gain you must acquire a new asset at some time between August 2018 and August 2022, unless HMRC let you have relief for a new asset acquired outside that period.

 

Assets not brought immediately into business use

If you acquire a new asset but do not immediately take it into business use you may still be able to claim roll-over relief providing:

  • you incur capital expenditure for the purpose of enhancing the assets value
  • any work arising from such capital expenditure begins as soon as possible after acquisition and is completed within a reasonable time.
  • on completion of the work the asset is taken into use for the purpose of the trade and for no other purpose
  • the asset is not let or used for any non-trading purpose in the period between acquisition and the time it is taken into use for the purposes of trade

Example 12

You sell a factory on 20 July 2019 for £526,000 making a gain of £34,000. You incur expenditure of £560,000 in building a new factory between 6 February 2021 and 20 July 2021 but the factory is not completed and brought into the use of your trade until 11 January 2023 by which time you’ve expended £631,000.

As you’ve incurred capital expenditure of £560,000 within the period for reinvestment, you can claim roll-over relief on the £34,000 gain.

 

Relief available

If you use the whole amount you receive from the disposal of the old assets to acquire new assets, the whole of your gain will be deferred by deducting it from the cost of the new assets.

Example 13

You sell a shop for £50,000 and make a gain of £10,000. You buy a new shop for £75,000 and claim roll-over relief. The cost of your new shop will be reduced to £65,000 when you calculate the gain or loss you will make if you sell it.

If you use part of the amount you received for the disposal of the old assets and the part not used is less than the amount of the gain, the amount by which the proceeds exceeds the amount used will be treated as the gain upon which tax may be due and you will get relief for the amount by which the gain is reduced. You deduct that amount of the gain from the cost of the new assets.

Example 14

You sell a shop for £75,000 and make a gain of £15,000. You buy a new shop for £70,000 and claim roll-over relief. £5,000 was not used to buy the new shop. So the cost of the new shop is reduced by £10,000 (£15,000 gain less £5,000 not used) to £60,000 and you may have to pay tax on the remaining gain of £5,000.

Sometimes to calculate your chargeable gains, the market value of the assets replaces the actual:

  • disposal proceeds you received
  • cost of the asset you acquired

For example, if you sell an asset to your brother, you ignore the price he actually pays and will be taxable as if you had received the full market value of the asset. If you replace your actual cost or disposal proceeds in this way, then the amount you have to reinvest, or the amount you’re treated as having reinvested, is the substitute figure.

Example 15

You sell a shop worth £80,000 to your son for £10,000. You make a gain of £30,000 (based on the market value of the shop) and want to claim roll-over relief. To get any relief you must acquire new assets costing more than £50,000 (£80,000 less £30,000 gain). To get full relief you must acquire new assets costing at least £80,000.

 

What is the claim time limit

You can make a claim within 4 years after the end of the tax year in which the later of the following took place:

  • the disposal of the old assets
  • the acquisition of the new assets

Example 16

You sell a shop in May 2017 and acquire a new shop in August 2019. You must claim roll-over relief by 5 April 2024.

 

How to claim relief

When you claim relief you must tell HMRC about:

  • the old assets you’ve disposed of
  • the amount you received for each of those assets
  • the date on which you sold each of them
  • the new assets you’ve acquired
  • the dates on which you acquired each of them, or the dates on which unconditional contracts for the acquisition of each of these assets were entered into
  • the cost of each asset acquired
  • the amount of proceeds from the disposal of each old asset that you’ve used to acquire each new asset

You can use this form to make a claim. You can attach it to the Capital Gains Tax summary pages of your tax return. If you want to make more than one claim, you may use multiple copies of the form.

If you’re claiming roll-over relief you should use code ROR in box 8 or box 20 on the Capital gains summary pages. However, if there are other transactions that are included in the same section and more than one code could apply to box 8 or box 20, then you should use the code MUL and provide further details of all claims and elections being made in the ‘Any other information’ section (box 54) or in your supporting computation.

 

Provisional relief

You can use the form to make a declaration of your intention to use some or all of the proceeds of disposal of an old asset in the acquisition of new assets. If you intend to reinvest all of the proceeds, you can get provisional relief on the gains you make on that disposal. If you intend to reinvest part of the proceeds, you may be able to get provisional relief on part of the gains you make on that disposal. The amount of CGT you can defer is the amount of tax that would have been deferred if you had actually acquired a new asset costing an amount equal to that part.

How it works is shown in Example 18. If you declare an intention to reinvest but do not acquire new assets and make a claim to roll-over relief, you will have to pay the amount of deferred tax, together with interest on that tax from the date on which it was originally due to be paid, to the date on which you actually pay it.

Provisional relief will be allowed until whichever is the earliest of the following:

  • the date you make a claim to roll-over relief – if you make a valid claim to relief, the tax will be deferred until you dispose of the new asset or, for a depreciating asset, until the time determined in accordance with the above information
  • the date you notify HMRC that your intention has changed and that you no longer intend to reinvest – if interest will be charged on the deferred tax, you can minimise that interest by telling HMRC as soon as possible if your intention has changed – this may be done by contacting HMRC directly. You will then be asked to pay the additional tax due for the year in which the asset was disposed of, together with interest on that tax
  • 3 years from the 31 January following the tax year in which you’ve made the disposal, see Example 17 below

If you have not made a valid claim to roll-over relief, or withdrawn the declaration of intent to reinvest, by 3 years from the 31 January following the tax year in which you made the disposal, you should notify HMRC that your provisional claim has expired and the tax on the disposal in the earlier year is now due, together with interest on that tax. If you acquire a new asset after that time and claim relief or subsequently make a valid claim, the tax and interest can be repaid to you if you meet the conditions set out above for the reinvestment time limit to be extended. Your claim will need to be valid in every other respect.

If you’re making a provisional claim for roll-over relief you should use code PRO in box 8 or in box 20 on the Capital gains summary pages. However, if there are other transactions that are included in the same section and more than one code could apply to box 8 or to box 20, then you should use the code MUL and provide further details in box 54 or in your supporting computation.

Example 17

You dispose of an old asset in June 2019 for £50,000, making a gain of £20,000. You make a declaration that you intend to reinvest the whole of the disposal proceeds in the acquisition of new assets and intend to claim roll-over relief. You will not pay tax on the gain of £20,000 on 31 January 2021. If you have not claimed roll-over relief, or withdrawn your declaration of intent to reinvest and paid the tax and interest on that gain by 31 January 2024, HMRC will ask you to pay the tax together with interest from 31 January 2021.

Example 18

You dispose of an old asset for £80,000, making a gain of £30,000. You intend to reinvest only £60,000 in acquiring new assets. If you make a declaration to that effect 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.


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