What is Capital Gains Tax Rollover Relief?
The main function of business asset roll-over relief is deferring Capital Gains Tax when disposing of certain assets and acquiring other assets.
So, you can postpone the relief on a new asset as long as it costs at least the same as the amount realised when you sold the old asset.
You can review the latest guidelines on CGT reliefs in the Capital Gains Manual (updated by HM Revenue and Customs).
You sell your old shop for £85,000 and use the money to buy a bigger and more modern new shop that costs £110,000.
If you use HS290 to claim Business Asset Rollover Relief, you will be able to delay paying tax on the realised gains made by selling the old shop until you have sold the new one.
So, what would happen if you acquire a new asset that costs less than the amount you got by ‘disposing’ of the old asset? In this case, you may qualify for ‘partial’ relief.
You sell your old shop for £85,000 and use the money to buy a new shop that costs £75,000. Making a gain would mean you still need to pay some Capital Gains tax (CGT). But, you may also qualify for some relief.
Note: Another section contains information explaining how to claim Business Asset Disposal Relief (known as the Entrepreneurs’ Relief until 6th of April 2020).
A similar kind of tax relief is available if you ‘dispose of’ land that has been compulsorily purchased – assuming you use it to buy new land. In this case, CGT would not be liable until you sell or ‘dispose of’ the new land.
Furthermore, the system of ‘provisional relief’ relates to gains made on the disposal of old assets after declaring an intention to acquire new assets – and then claim the relief.
Qualifying for Business Asset Rollover Relief
You may be able to claim relief on certain business assets such as property, land, fixed plant, or machinery. But, to qualify for Capital Gains Tax rollover relief:
- As a rule, the new business assets should cost the same as (or more than) the amount you received when you disposed of the old business assets.
- The old assets and the new assets must be used in the business, and it must actually be trading when you sell or dispose of the old assets and invest in the new ones.
- You must purchase the new assets within three (3) years of selling or disposing of the old business assets (or up to a maximum of one year before).
Tax Rules for Claiming Partial Relief
You may also qualify for partial relief if you only reinvest part of the proceeds after selling or disposing of the old assets, and the:
- Old assets were only ‘partly’ used in the business.
- Proceeds were used to purchase ‘depreciating assets’ (e.g. fixed plant or machinery, or assets not expected to last over sixty years).
You sell your shop for £110,000 and realise a gain of £30,000. Even though you owned it for eight (8) years, you only traded from it for seven (7) years.
Because you let the shop for the other year, you can only defer seven-eighths of the gain. Thus, you would need to acquire new assets costing at least £96,000 to claim the deferral.
How to Claim Business Asset Rollover Relief
You need to fill in a special form before a taxpayer can make a rollover relief claim. Download the Business Asset Roll-over Relief: HS290 Self Assessment helpsheet from HMRC. Make sure you include form HS290 with your Self Assessment tax return.
Note: You must make any claim to delay or defer Capital Gains Tax Rollover Relief within four (4) years of the end of the tax year when you invested in the new asset (or disposed of the old trading asset).
Related HMRC Tax Guides
- Capital Gains Tax on personal possessions (e.g. chattels).
- Liquidating a limited company: Step by step guide.
- Working out capital gains on disposed assets for HMRC.
Note: The Capital Gains Tax guide explains more about how taxation on the profits realised after selling an asset works in Great Britain and Northern Ireland. You can also consider seeking expert advice from a professional tax adviser or an accountant.