Rollover Relief: Deferring CGT on Replacement of Business Assets 2026/27
How rollover relief defers Capital Gains Tax when you reinvest proceeds from selling a qualifying business asset in 2026/27: qualifying assets, the reinvestment window, partial reinvestment, and an example.
What Is Rollover Relief?
Rollover relief, technically known as Business Asset Roll-over Relief, allows a business to defer Capital Gains Tax on the disposal of a qualifying business asset by reinvesting the sale proceeds into a replacement qualifying asset. Rather than paying CGT on the gain when the original asset is sold, the gain is "rolled into" the replacement asset, reducing its base cost for future CGT purposes.
The relief exists to avoid taxing businesses that are simply upgrading or replacing the assets they use to trade -- for example, a manufacturer selling an old factory to buy a larger one, or a farmer selling one parcel of land to buy another. Without rollover relief, businesses reinvesting entirely for operational reasons (rather than realising cash for personal use) could face a CGT bill that reduces the funds available to reinvest, discouraging growth and asset renewal.
Unlike Incorporation Relief, rollover relief is not automatic -- a formal claim must be made.
Qualifying Assets
Rollover relief applies only to specific classes of asset set out in legislation. Both the asset sold and the replacement asset acquired generally need to fall within these classes and be used in a trade:
| Qualifying asset class | Notes |
|---|---|
| Land and buildings | Must be used for the purposes of the trade |
| Fixed plant and machinery | Excludes most moveable/mobile plant |
| Ships, aircraft, hovercraft | Common for transport and logistics businesses |
| Satellites, space stations, spacecraft | Niche but included in the legislation |
| Goodwill | For sole traders and partnerships; restricted for companies |
| Milk quotas, potato quotas, ewe and suckler cow premium quotas | Legacy agricultural quotas |
Both the old and new asset must be used in a trade carried on by the same person or business -- you cannot roll over a gain on a trading asset into a buy-to-let property, for example, because rental property is not itself a qualifying trade for this purpose (with limited exceptions such as furnished holiday lettings, subject to their own specific rules).
The Reinvestment Window
The replacement asset must be acquired within a window starting 1 year before the disposal of the old asset and ending 3 years after it. This gives businesses reasonable flexibility to plan a reinvestment around the timing of a sale, whether that means buying the replacement slightly in advance or taking time afterwards to identify and complete a suitable purchase.
HMRC has discretion to extend this window in exceptional circumstances, such as delays outside the taxpayer's control, but any extension requires a specific application and is not guaranteed.
Partial Reinvestment
Rollover relief does not require every penny of the sale proceeds to be reinvested. If only part of the proceeds are reinvested, relief is given only on the amount reinvested, following this broad principle:
- The gain is only rolled over to the extent that the sale proceeds are reinvested. If you keep back cash exceeding the size of the gain, that retained cash amount is taxed immediately, while the balance of the gain can still be rolled over.
- If you reinvest the full proceeds, the whole gain can potentially be rolled over (subject to the value of the replacement asset).
- If you reinvest less than your original cost in the old asset, no relief is available on the shortfall.
In practice, businesses often model this carefully when deciding how much of a sale to reinvest versus retain as working capital or extract for other purposes.
Depreciating Assets: A Different Timeline
Not all rollover claims give a permanent deferral. Where the replacement asset is a "depreciating asset" -- broadly, one with a predictable useful life of 60 years or less, which captures most plant and machinery and some short-leasehold property -- the gain is not folded into the asset's base cost in the normal way. Instead, the gain is held over separately and becomes chargeable on the earliest of:
- The disposal of the depreciating asset
- The asset ceasing to be used in the trade
- The 10th anniversary of the acquisition of the depreciating asset
This means rollover relief into plant and machinery is, in effect, a maximum 10-year deferral rather than an indefinite one, unless the gain is subsequently rolled over again into a non-depreciating asset before one of those trigger events occurs.
Worked Example
A logistics company sells a warehouse for £900,000, realising a chargeable gain of £350,000 after deducting the original cost and allowable expenses. Within 18 months, the company buys a larger warehouse for £1.1 million, reinvesting the full proceeds and more.
- Because the full £900,000 proceeds were reinvested (and more), the whole £350,000 gain qualifies to be rolled over.
- No Corporation Tax is due on the chargeable gain in the year of the warehouse sale.
- The base cost of the new warehouse for future gains purposes is reduced from £1.1 million to £750,000 (£1.1 million minus the £350,000 rolled-over gain).
- Because a warehouse building is not a depreciating asset in the relevant sense (it is not expected to have a life of 60 years or less), the deferral is not time-limited to 10 years -- the gain remains rolled into the new warehouse's base cost until it is eventually sold without a further rollover claim.
If instead the company had reinvested only £700,000 (below the £900,000 proceeds but still above the £350,000 gain), the £200,000 shortfall between proceeds and reinvestment would be treated as not reinvested. Because that £200,000 is less than the £350,000 gain, the gain remains fully deferrable up to the amount actually reinvested, with any balance of proceeds not reinvested becoming chargeable immediately to the extent it exceeds the original cost of the asset sold.
Claiming Rollover Relief
Rollover relief must be actively claimed -- it is never automatic. The claim is normally made within 4 years of the end of the tax year (for individuals and partnerships) or accounting period (for companies) in which the later of the disposal or the reinvestment occurs.
For businesses expecting to reinvest but not yet certain of the exact replacement asset, a provisional claim can be made based on an intention to reinvest, with the claim finalised once the replacement purchase completes. If the intended reinvestment does not ultimately happen within the time limit, the provisional relief is withdrawn and the original gain becomes chargeable, usually with interest on the late-paid tax.
Sources
Frequently asked questions
What is rollover relief?
Rollover relief (formally Business Asset Roll-over Relief) is a Capital Gains Tax relief that lets a business defer the gain on selling a qualifying business asset by reinvesting the proceeds in a replacement qualifying asset. The gain is rolled into the base cost of the new asset rather than being taxed immediately.
Which assets qualify for rollover relief?
The main qualifying classes are land and buildings used in the trade, fixed plant and machinery, ships, aircraft, hovercraft, satellites, space stations and spacecraft, goodwill (for sole traders and partnerships, though restricted for companies since 2002), and milk and other production quotas. Both the asset sold and the replacement asset generally need to be within these qualifying classes, and both need to be used in a qualifying trade.
What is the reinvestment time window for rollover relief?
You must acquire the replacement asset within a period starting 1 year before and ending 3 years after the disposal of the old asset. HMRC can extend this window in some circumstances if there is a good reason for delay, but this requires a specific application.
What happens if I only reinvest part of the proceeds?
If you reinvest less than the full disposal proceeds, only part of the gain can be rolled over. The amount of gain that must remain chargeable immediately is the amount by which the proceeds not reinvested exceed the original gain -- broadly, if you keep back more cash than the gain itself, none of the gain needs to be rolled over on that portion.
Does rollover relief apply to companies as well as individuals and partnerships?
Yes, both individuals, partnerships and companies can claim rollover relief on qualifying business assets, though for companies the disposal is usually within the corporation tax chargeable gains regime rather than CGT, and goodwill is treated differently for companies incorporated after specific dates due to the intangible fixed assets rules.
Can I use rollover relief between different types of qualifying assets, such as selling land and buying machinery?
Yes, rollover relief does not require the replacement asset to be the same type as the one sold, only that both fall within the qualifying classes of assets set out in the legislation. Selling a factory building and buying new fixed plant, for example, can qualify.
What happens to the deferred gain when I eventually sell the replacement asset?
The deferred gain reduces the base cost of the replacement asset. When that replacement asset is eventually sold without a further rollover claim, the deferred gain becomes chargeable alongside any additional gain made on the replacement asset itself, taxed under the rules in force at that later date.
Is there a difference between rollover relief and depreciating assets like short-life plant?
Yes. Where the replacement asset is a 'depreciating asset' (broadly, one with a predictable life of 60 years or less, such as most plant and machinery), the gain is not permanently rolled into the asset's base cost. Instead it is held over and becomes chargeable on the earliest of: sale of the depreciating asset, the asset ceasing to be used in the trade, or 10 years after acquisition.
Can rollover relief and Business Asset Disposal Relief both apply to the same disposal?
Not to the same gain at the same time. If you roll over a gain, no CGT is due immediately, so there is nothing to apply a BADR rate to at that point. When the deferred gain eventually crystallises (on sale of the replacement asset without further rollover), BADR may potentially apply then if the qualifying conditions are met at that time, but this needs case-by-case analysis.
Do I need to make a formal claim for rollover relief?
Yes, rollover relief must be claimed, normally within 4 years of the end of the tax year (or accounting period for companies) in which the later of the disposal or acquisition occurs. It is not automatic like Incorporation Relief, so a claim must be actively made on the tax return or by separate written claim to HMRC.
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