TXF6 UK
Syllabus E. Corporation Tax Liabilities E3. Chargeable gains for companies

E2g. Rollover relief 5 / 5

Syllabus E2g)

Explain and apply rollover relief
and
The use of such exemptions and reliefs is implicit within all of the above sections 1 to 5 of part E of the syllabus, concerning corporation tax.

Capital gain reliefs for companies

Rollover relief for companies

Rollover relief for companies is the same as rollover relief for individuals. 

The only difference between the two is that the indexed gain is rolled over for companies, whereas individuals do not index the gain.

Explanation

Subject to certain conditions a company may claim that the gain arising on the disposal of a business asset may be rolled over against the cost of acquiring a replacement business asset.

Main effects:

  1. Disposal of the old asset will arise in neither a gain nor a loss.

  2. Cost of the new asset is reduced by the indexed gain that would have been chargeable on the disposal of the old asset if the claim for roll over relief had not been made.

Conditions:

  1. The disposal must have been of a qualifying business asset and the reinvestment must be in a qualifying business asset.

  2. The reinvestment must be made 12 months prior to the sale or 36 months post the sale.

  3. All of the sale proceeds received on the sale must be reinvested for qualification of full roll over relief. If only some of the sale proceeds are reinvested, then:

    Total sale proceeds received-sale proceeds reinvested = indexed capital gain realised NOW. 

    Total indexed capital gain-indexed capital gain realised now = indexed capital gain to be rolled over.

Qualifying assets:

  1. Land and buildings.

  2. Fixed plant and machinery.

    Both of these assets must be used in the business.

Illustration:

Jeremy Ltd. sold its business office on 30/06/2020 for £350,000.

This office cost the company £100,000 on 29/09/2003. Jeremy Ltd. bought another business office for £250,000 on 31/12/2020.

  • Indexation factor 0.915

  • How much of the indexed capital gain can be rolled over?

    What is the base cost of new business office?

Solution:

Disposal proceeds £350,000

Acquisition cost (£100,000)

Unindexed capital gain £250,000

Indexation allowance (W1) (£91,500)

Indexed capital gain £158,500

Gain deferred    (£58,500)

Capital gain now (W2) £100,000

Base cost of new office

Cost of office £250,000

Gain to be rolled over (£58,500)

Base cost of new office £191,500

This base cost will be used as the cost against the disposal of the new office.

W1:

0.915 x £100,000 = £91,500

W2:

Disposal proceeds received £350,000
Disposal proceeds reinvested (£250,000)
Capital gain to be realised now £100,000