Also known as replacement of business assets’ relief.
Rollover relief in a nutshell
Rollover relief allows a business to defer the payment of tax when a business asset is sold, and the proceeds are used to replace it with another asset in certain circumstances.
The relief is only available to persons carrying on a trade. This includes sole traders, partners in a partnership, companies or trustees / personal representatives carrying on a trade. This overview gives brief details of the operation of the relief and qualifying conditions.
What types of assets qualify for rollover relief?
Rollover relief is only available to a trader who makes a disposal of a qualifying asset, and who reinvests all or part of the proceeds in another qualifying asset. The most common types of qualifying assets are land and building used for a trade, goodwill for non-incorporated businesses and fixed plant and machinery. There are also specific rollover rules for intangible assets which are held by companies.
Rollover relief is also available where an individual owns an asset, but the asset is used by that individual’s personal company i.e. where the individual owns at least 5% of the voting shares.
The new asset, i.e. the asset being acquired, must be immediately taken into use for the purposes of the trade. It is not possible for an asset to be bought and used for non-trading purposes if rollover relief is to be claimed. A trade, in this context, can include furnished holiday lettings. For example, if a landlord sells a furnished holiday let and makes a capital gain, rollover relief will be available if the landlord reinvests all or part of the proceeds in acquiring a new furnished holiday let.
What if an asset was only partly used for trading purposes?
Where the old asset was only partially used for trading purposes, the part used for the trade and the part used for non-trade purposes are treated as separate assets. In addition, where the new asset is partly used for trade and partly used for non-trade purposes, a taxpayer can claim rollover relief on the amount reinvested in the trading element of the asset only.
What are the time limits for buying a new asset?
For a rollover claim to be valid, the new asset must be acquired within a four-year time window running from 12 months before the sale of the old asset to 36 months afterwards.
How does rollover relief work?
Where a person disposes of a qualifying business asset and reinvests the proceeds in buying another qualifying business asset, rollover relief can be claimed. If all proceeds are reinvested, full rollover relief is given. The amount of the gain deferred is rolled over and reduces the base cost of the new asset purchased.
When the person eventually sells the replacement asset the gain on the sale of that asset will be uplifted by the amount deferred in respect of the first asset. In other words, the second gain is larger than it would have otherwise been, as the base cost is smaller.
Where a person does not reinvest all the sale proceeds, the amount of cash retained is immediately chargeable to tax. The balance of sale proceeds is the rollover relief that the person can claim.
When the amount of cash retained on the first disposal exceeds the chargeable gain, the whole of the gain is chargeable and no rollover relief can be claimed.
Can rollover be claimed within groups?
The rollover relief rules also apply where a company, which is a member of a group, disposes of an asset and another group company acquires a qualifying asset. For these purposes all the trades of the group members are treated as one trade. A joint claim must be made by the two companies.
How is rollover relief claimed?
The disposal and details of the rollover claim should be provided in the tax return for either the individual or the company together with the HS290 form for individual or a formal written claim for companies.
Claims for rollover relief must be made within four years from the end of the accounting period of the later of the acquisition of the replacement asset or the disposal of the original asset.