Rollover relief (also known as the replacement of business assets relief) gives a trader relief when a business asset is sold and replaced with another. The relief works by deferring the amount of the gain and reducing the base cost of the new asset by an amount equal to the rolled over gain.
The relief only applies to certain types of business assets. The most common types of qualifying assets are land and buildings used for the purposes of a trade (eg offices, factories and warehouses) and fixed plant and machinery. There are several conditions that must be met for the relief to apply including that 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. Full relief is restricted where all of the disposal proceeds are not reinvested or where there is only partial business use of one of the assets.
Where the replacement asset has a useful life of less than 60 years, it is known as a depreciating asset. Rollover relief for depreciating assets operates differently to non-depreciating assets. In such cases, the gain is instead frozen until the earlier of sale of the replacement asset, the date the replacement asset ceases to be used in the trade or 10 years after the date the replacement asset was acquired.