If you’re moving business premises because you’re expanding the last thing you want is a capital gains tax bill to put a hole in your cash flow. There is a way to defer the tax though using rollover relief.
The principal is that the gain on the disposal of one asset can be rolled over into the purchase of its replacement. This means that the tax isn’t due until the replacement assets is sold, and you can continue to rollover a number of times.
Here is an example:
Mel is looking to upgrade the factory that his Company operates from. His existing premises cost £245,000 and are now worth £325,000, so he has a gain of £80,000 to deal with. He is buying new premises for £500,000 and can defer the whole gain until the replacement asset is sold. Another potential benefit is that when he sells up completely he might be eligible for entrepreneurs relief whereby the gain is taxed at 10% instead of 20%, a relief not available to him at the moment.
A few rocks in the road to watch out for:
- If the full proceeds are not reinvested then only part of the gain is deferred;
- Only certain assets are eligible
- Don’t forget to bring the gain back into play on the sale of the replacement asset.