Roll-over relief for traders ― restrictions

Produced by Tolley
Roll-over relief for traders ― restrictions

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Roll-over relief for traders ― restrictions
  • Restrictions to the amount of roll-over relief
  • Partial reinvestment
  • Restrictions to the gain qualifying for relief
  • Non-business use of an asset (buildings and associated land only)
  • Non-business ownership period of an asset
  • Reinvestment in a depreciating asset
  • Tax planning
  • Two or more assets
  • Claiming roll-over relief
  • More...

Roll-over relief is sometimes referred to as ‘replacement of business assets’ relief, as this allows traders to defer capital gains tax (CGT) when they sell a business asset and replace it with another (ie reinvesting the proceeds).

Roll-over relief works by deferring the amount of the gain and reducing the base cost of the new asset purchased.

The conditions for claiming roll-over relief, the mechanics of a claim for full relief and the interaction with the non-resident capital gains tax (NRCGT) rules are detailed in the Roll-over relief for traders guidance note.

This guidance note considers occasions where either the amount of roll-over relief is restricted or where the amount of the gain qualifying for roll-over relief is restricted. In either of these cases, this will mean a proportion of the gain remains chargeable following the roll-over relief claim; therefore, this guidance note also considers the interaction of roll-over relief with other CGT reliefs.

Restrictions to the amount of roll-over relief

Partial reinvestment

Where the trader reinvests only part of the proceeds of an old qualifying asset in the acquisition of a new qualifying asset the roll-over relief claim is restricted.

The gain remaining chargeable is the amount of the proceeds not reinvested:

Chargeable gain = proceeds from sale of old asset – cost of new asset

This is illustrated by the following proformas.

Gain on the sale of the old asset:

£
Sales proceedsX
Less: costs of sale(X)
Less: cost or market value as at 31 March 1982 (MV82) if later(X)
Less: enhancement expenditure(X)
GainX
Less: roll-over relief(X)Balancing figure
Chargeable gain (proceeds less cost of new asset) *X

Base cost of the new asset:

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