What is Business Asset Rollover Relief and how does it defer Capital Gains Tax?

Full answer

Business Asset Rollover Relief allows a trader to defer Capital Gains Tax (CGT) when they sell certain business assets and reinvest the proceeds in new qualifying assets used in the trade. Instead of paying CGT on disposal, the gain is deducted from the cost of the replacement asset -- it is 'rolled over' -- which lowers the new asset's base cost and increases the taxable gain when that asset is later sold. It defers, rather than cancels, the tax. Who it affects: sole traders, partnerships, and companies that sell and replace assets used in their business, such as land and buildings, fixed plant and machinery, and certain other qualifying assets. The old and new assets must both be used for trading. Timing matters: you generally must buy the new asset within a window running from one year before to three years after selling the old one. To get full relief you must reinvest all the disposal proceeds; if you reinvest only part, relief is restricted and some gain becomes chargeable now. Worked example using rate card figures: suppose a sole trader sells business premises and makes a GBP 80,000 gain, then reinvests the full proceeds in a new trading premises. With full rollover relief, no CGT is due now; the GBP 80,000 gain reduces the base cost of the new building. If instead they did not reinvest and the gain fell in the higher-rate band, CGT at 24% on GBP 80,000 (after the GBP 3,000 Annual Exempt Amount) would apply -- roughly GBP 18,480 -- so deferral has real cash-flow value. The relief interacts with other reliefs such as Business Asset Disposal Relief (BADR at 18%). The rules are detailed, so check gov.uk and use a Capital Gains Tax calculator to model the eventual gain on the replacement asset.

Try the calculator