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Alice is in business as a sole trader. On 13 May 2019, she sold a freehold warehouse for £184,000, and this resulted in a chargeable gain of £38,600. Alice purchased a replacement freehold warehouse on 20 May 2019 for £143,000. Where possible, Alice always makes a claim to roll over gains against the cost of replacement assets. Both buildings have been, or will be, used for business purposes by Alice.
What is the base cost of the replacement warehouse for capital gains tax purposes?
Shouldn’t the calculation be:
Rollover relief calculation for old asset:
Lower of 100% gain or amount not reinvested….. (which = 38600)Base Cost calculation for new asset:
Cost = 143000
Rollover Relief = (38600)
Base Cost = 104,400I’m afraid that you have misunderstood how rollover relief works when the trader fails to reinvest all of the sale proceeds – the rollover relief is restricted BY the amount of sale proceeds NOT reinvested – it is NOT restricted TO the amount that has not been reinvested!
Have you watched the OT lectures in conjunction with working through the OT Study Notes?
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