CAPITAL GAINS TAX – BUSINESS RELIEFS
ROLL OVER RELIEF – REPLACEMENT OF QUALIFYING BUSINESS ASSET – TCGA 1992, ss152 -
159
Qualifying asset –
- land, buildings and goodwill.
- Company shares are not qualifying assets.
The relief can apply on the disposal of a qualifying asset owned by:
- Sole trader and used in his trade
- Partnership used in his partnership trade
- An individual partners and used in the partnership trade
- An individual shareholder and used in the trade of the company in which he owns
shares. The company must be the shareholder’s ‘personal company’ - i.e own at least
5% of voting shares in the company.
Time Limit –
- The replacement asset must be acquired within one year before or three years after
the disposal of the original asset – unless extended by HMRC.
Application –
ROLL OVER RELIEF EXAMPLE
In September 2019, H, a sole trader, sells some premises that he has owned since 1999 for £70,000.
He makes a gain of £30,000 (it is his only chargeable disposal in the 2019/20 tax year). Six months
later, H buys some more premises for £80,000. If H claims roll-over relief on the replacement of
qualifying assets:
1. (a) H will pay no CGT in 2019/20 as the gain on the disposal of the original premises is
postponed;
2. (b) for the purposes of future CGT calculations the replacement premises will be treated as
being acquired for £50,000 (£80,000 less £30,000);
3. (c) H will not be able to use his annual exemption for 2019/20.
Imagine that H then sells the new premises in 2022 for £125,000. The calculation of his gain will be:
Proceeds of disposal Less
Adjusted acquisition cost Gain
125,000 B
50,000 (without the effect of roll-over it would be 80,000) 75,000 (without the effect of roll-over it
would be only 45,000)
Provided the qualifying conditions were met, the gain from the 2022 sale could itself be rolled over.
, HOLD OVER RELIED ON GIFTS/GIFT @ UNDERVALUE OF BUSINESS ASSETS – TCGA,S165AND
SCH 7
- Disposes of business assets by way of gift, or to the extent of the gift element, at an
undervalue.
- Does not exempt CGT, instead postpones any tax liability.
- The relief is designed to allow business assets to be given away without a tax charge
falling on the donor
CONDITIONS FOR RELIEF TO APPLY
- Gift or gift element.
- Only gain relating to chargeable business assets can be held over. Business assets
are;
- Assets which are used in the donor’s trade or his interest in such assets. This related
to assets of a sole trader or partnership.
- Shares in a trading company which are not listed on a recognised stock exchange.
- Shares in a personal trading company even if listed on a recognised stock exchange.
- Assets owned by the shareholder and used by his personal trading company.
- The relief does not apply to a gift of shares if the donee is a company.
- For the relief to apply, both donor and donee must so elect. Election must be made
no more than four years after the end of the tax year of the disposal.
APPLICATION
EXAMPLE
J gives M, his son, the family business at a time when the business’s chargeable assets are worth
£100,000 and the total gains on those assets are £20,000. Eighteen months later M sells the business
for £110,000 (he makes no other disposals in the same tax year).
1. (a) J pays no CGT on the disposal to M.
2. (b) J and M elect to hold over J’s gain on the disposal to M, so that M’s adjusted acquisition
cost is £80,000 (£100,000 less £20,000). J’s annual exemption for the year cannot be
deducted from the held-over gain.
(c) on the sale of the business by M, his gain is:
Sale price
Less: adjusted acquisition cost Gain
M’s annual exemption for the tax year of the sale can be used to reduce the gain.
£ 110,000 80,000 30,000
ROLL OVER RELIEF – REPLACEMENT OF QUALIFYING BUSINESS ASSET – TCGA 1992, ss152 -
159
Qualifying asset –
- land, buildings and goodwill.
- Company shares are not qualifying assets.
The relief can apply on the disposal of a qualifying asset owned by:
- Sole trader and used in his trade
- Partnership used in his partnership trade
- An individual partners and used in the partnership trade
- An individual shareholder and used in the trade of the company in which he owns
shares. The company must be the shareholder’s ‘personal company’ - i.e own at least
5% of voting shares in the company.
Time Limit –
- The replacement asset must be acquired within one year before or three years after
the disposal of the original asset – unless extended by HMRC.
Application –
ROLL OVER RELIEF EXAMPLE
In September 2019, H, a sole trader, sells some premises that he has owned since 1999 for £70,000.
He makes a gain of £30,000 (it is his only chargeable disposal in the 2019/20 tax year). Six months
later, H buys some more premises for £80,000. If H claims roll-over relief on the replacement of
qualifying assets:
1. (a) H will pay no CGT in 2019/20 as the gain on the disposal of the original premises is
postponed;
2. (b) for the purposes of future CGT calculations the replacement premises will be treated as
being acquired for £50,000 (£80,000 less £30,000);
3. (c) H will not be able to use his annual exemption for 2019/20.
Imagine that H then sells the new premises in 2022 for £125,000. The calculation of his gain will be:
Proceeds of disposal Less
Adjusted acquisition cost Gain
125,000 B
50,000 (without the effect of roll-over it would be 80,000) 75,000 (without the effect of roll-over it
would be only 45,000)
Provided the qualifying conditions were met, the gain from the 2022 sale could itself be rolled over.
, HOLD OVER RELIED ON GIFTS/GIFT @ UNDERVALUE OF BUSINESS ASSETS – TCGA,S165AND
SCH 7
- Disposes of business assets by way of gift, or to the extent of the gift element, at an
undervalue.
- Does not exempt CGT, instead postpones any tax liability.
- The relief is designed to allow business assets to be given away without a tax charge
falling on the donor
CONDITIONS FOR RELIEF TO APPLY
- Gift or gift element.
- Only gain relating to chargeable business assets can be held over. Business assets
are;
- Assets which are used in the donor’s trade or his interest in such assets. This related
to assets of a sole trader or partnership.
- Shares in a trading company which are not listed on a recognised stock exchange.
- Shares in a personal trading company even if listed on a recognised stock exchange.
- Assets owned by the shareholder and used by his personal trading company.
- The relief does not apply to a gift of shares if the donee is a company.
- For the relief to apply, both donor and donee must so elect. Election must be made
no more than four years after the end of the tax year of the disposal.
APPLICATION
EXAMPLE
J gives M, his son, the family business at a time when the business’s chargeable assets are worth
£100,000 and the total gains on those assets are £20,000. Eighteen months later M sells the business
for £110,000 (he makes no other disposals in the same tax year).
1. (a) J pays no CGT on the disposal to M.
2. (b) J and M elect to hold over J’s gain on the disposal to M, so that M’s adjusted acquisition
cost is £80,000 (£100,000 less £20,000). J’s annual exemption for the year cannot be
deducted from the held-over gain.
(c) on the sale of the business by M, his gain is:
Sale price
Less: adjusted acquisition cost Gain
M’s annual exemption for the tax year of the sale can be used to reduce the gain.
£ 110,000 80,000 30,000
