Commentary

C3.305A Rollover relief—limits to relief

Capital gains tax
Capital gains tax | Commentary

C3.305A Rollover relief—limits to relief

Capital gains tax | Commentary

C3.305A Rollover relief—limits to relief

Partial reinvestment of disposal proceeds

To qualify for full rollover relief an amount equal to the whole of the proceeds of disposal of the old asset, net of incidental costs of disposal, must be reinvested in a replacement qualifying asset. However, a limited amount of relief may be given where a lesser amount is reinvested, provided that the amount not reinvested is less than the amount of the gain (whether or not the whole gain is chargeable).

Where limited relief is given in these circumstances1:

  1.  

    •     the chargeable gain is reduced to the amount not reinvested, and

  2.  

    •     the amount by which the chargeable gain is so reduced is deducted from the allowable expenditure on the new asset, for the purpose of calculating a gain or loss on a subsequent disposal

If the amount not reinvested is greater than the amount of the gain, no relief is due because no part of the gain has been reinvested.

Example 1

Su Lin occupies factory buildings under a lease having 80 years to run. The lease was acquired in December 1995 for £135,000. In November 2020, Su Lin relinquishes the lease for £320,000 and purchases a new business premises freehold for £305,000. The following calculations do not take account of any business asset disposal relief (formerly entrepreneurs' relief) due.

£
Consideration for disposal320,000
Deduct: Allowable cost(135,000)
Chargeable gain (before claiming rollover relief)£185,000

The amount of the proceeds that are not reinvested is £15,000 (£320,000 – £305,000). This is less than

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