Business Asset Rollover Relief allows you to delay your payment of Capital Gains Tax (CGT) if you dispose of business assets and use all or part of the proceeds to buy new business assets. This means that the CGT is not due until you sell the new asset.
Although Rollover Relief has been available for many years, different scenarios often cause us to re-read legislation and HMRC guidance in order to achieve the best outcome for our clients and guide their reinvestment strategies.
In order to qualify for Business Asset Rollover Relief:
- You must buy the new assets within three years of selling or disposing of the old assets (or up to one year before). For CGT purposes, the date of unconditional contract is the relevant date
- Your business must be trading when you sell the old assets and buy the new one
- You must use the old and new assets in your business. If the old asset was used by your personal company, the new asset must be used by the same company
You can claim relief on assets including:
- Land and buildings
- Fixed plant or machinery, e.g. grain drying equipment, fittings for intensive livestock buildings. Here the deferred gain is taxable on the earliest of ten years, disposal of the new asset, or new asset no longer used in the business. This can be a useful way to park a gain, whilst property is sought. Buying less than ideal land to save CGT is rarely worthwhile, given transaction costs and Stamp Duty Land Tax
Partial relief may be available if:
- You only reinvest part of the proceeds from the old assets
- The old assets were only partly used in your business. A tenancy over the new or old land is a problem here – buying land with a Farm Business Tenancy in place does not work as a rollover strategy.
It is possible to claim provisional relief if you plan to buy new assets with your proceeds but haven’t done so yet. Relief can also be available if you use the proceeds to improve assets you already own.
Different rules apply when dealing with a compulsory purchase. Please contact us if this applies.
How to get the most out of Business Asset Rollover Relief
1. It is worth drafting calculations before a disposal as:
- CGT considers the beneficial ownership of assets, which needs to be confirmed as the first step.
- If there is no taxable gain on the disposal, Business Asset Rollover Relief isn’t relevant.
- You need to know what the rate of CGT is on disposal, how much would you have to reinvest, and what would the saving be?
2. Sometimes, paying the CGT and using the proceeds as you like (e.g. reducing borrowings) may be the best option.
3. If a new asset is identified, consider if you want this to be in the hands of the owner of the old asset? If the new asset is expected to increase in value and not qualify for full Inheritance Tax (IHT) reliefs, you may unwittingly create a 40% IHT liability, which can be more than the original CGT saving.
4. Remember that rolled over gains die with the taxpayer, escaping CGT forever.
5. Rollover Relief can be claimed into inherited assets, provided these will be used in your business. The date of the inheritance needs to fit into the Business Asset Rollover Relief time window. This is particularly worthwhile if you intend to hold the inherited assets until your own death. The CGT base cost of the asset on your death, under current rules, would then be probate value, with the rolled over gain falling away.
6. HMRC have discretion to extend the rollover reinvestment window in certain circumstances; we have had success in putting forward cases to support such requests.
This article and business tax planning suggestions are based on rules at the time of writing. If you would like advice on Business Asset Rollover Relief in relation to your specific circumstances, please contact Helen King on hking@ellacotts.co.uk or 01295 250401.
