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A quick look at... rollover relief

Rollover relief is an important relief available to both companies and sole traders, but there are some twists to watch out for.

February 2016

These include:
1. The asset that is sold and the replacement asset must both qualify for rollover relief. Neither the asset sold nor the replacement asset can be shares. Also, goodwill is a qualifying asset for a sole trader but not for a company, although there are similar deferral rules that relate to companies and intangibles.
2. Where the replacement asset, rather than the asset being sold, is depreciating, the base cost of the new asset is not reduced. A depreciating asset is essentially one that has an expected life of 60 years or less, so could be plant and machinery or a lease. In this case, the gain on sale does not reduce the base cost of the replacement asset. Instead, it is deferred until the earliest of the sale of the replacement asset, the time when that asset ceases to be used in the trade or 10 years from the acquisition of the new asset, whichever is earliest.
3. Always compare the proceeds from the sale with the cost of the replacement asset. Any proceeds not re-invested are immediately chargeable to tax, so work out this figure first and only the balance can be rolled over.
4. There will be a restriction on rollover relief where there is non-trade use of the assets involved. For example, assume business premises are sold where one-third of the property is let out as surplus office space, a non-trading activity. This means that one-third of the gain cannot be rolled over. However, only two-thirds of the proceeds need to be
re-invested in new trading assets.
5. A rollover relief claim cannot be restricted by choice, but by the issues described above.
• Cath Hall is an AIA Achieve e-tutor. The AIA Achieve team is producing a series of
‘A Quick Look at…’ articles throughout 2016. More articles can be found on the AIA website: www.aiaworldwide.com/a-quick-look-at

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