Business Asset Rollover Relief

Business Asset Rollover Relief allows you to delay paying Capital Gains Tax when you sell or dispose of certain assets at a gain and use all or part of the proceeds to buy new assets.

The relief means that any Capital Gains Tax that would have been due is postponed. As the name of the relief suggests, the amount of the gain is effectively rolled over into the cost of the new asset and any liability is deferred until that new asset is sold.

The relief also works when only part of the proceeds from the sale of the old asset is used to buy a new asset a partial rollover claim can be made.

From a planning perspective, you can claim for provisional rollover relief where you expect to buy new assets but haven’t done so yet.

Rollover relief can also be claimed if you use the proceeds from the sale of the old asset to improve assets you already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

You must ensure that you purchase new assets within 3 years of selling or disposing of the old ones (or up to one year before). Under certain circumstances, HMRC has the discretion to extend these time limits.

Planning

As with all reliefs there are qualifying conditions to be met to ensure entitlement. This might include ensuring that, both the old and new assets are used by your business and that the business is trading when you sell the old assets and buy the new ones.

If eligible it may be more beneficial to claim entrepreneurs’ relief and so pay the Capital Gains Tax due at the lower 10% rate at the time of the disposal of the old asset. The rationale for this is that the 10% rate is very low, and it possible therefore that whilst you pay now rather than later you do so at a better rate.

With a similar result to Business Asset Rollover Relief, Enterprise Investment Scheme relief might be possible. Deferral can be claimed against a chargeable gain arising on disposal of any asset where gain is invested in Enterprise Investment Scheme (“EIS”) shares.

The effect is to defer the tax liability until the EIS shares are sold. A disposal of these shares would be taxed at the prevailing capital gains tax rates or unless the gain is again deferred into a qualifying investment.

Obviously, you have to be happy with the investment, be it EIS or Business Asset, but if you are looking to shelter a gain then EIS gives added benefits:

• 30% Income Tax relief available;
• BPR qualifying investments, protecting you from Inheritance Tax (after a two-year qualifying period); and,
• Providing the relevant conditions are met there is no Capital Gains Tax on any gain on the disposal of EIS shares.

Planning for all significant disposals is recommended as there are a range of options to defer or relieve Capital Gains Tax, and so it is sensible to take advice on the best course of action to take.