Chargeable Gains – Companies – Reliefs

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1 Replacement of business assets (Rollover Relief)

1.1 Definition

A gain may be ‘rolled over’ (and the gain deferred) where it arises on the disposal of a qualifying business asset where the sale proceeds are reinvested in another qualifying business asset.

1.2 Qualifying assets

Both the old and new assets must fall into one of the following categories:

Land and buildings
Fixed plant and machinery

Note that goodwill is not a qualifying asset for companies.

Both the old and new assets must be used in a trade of the vendor.

1.3 The relief

The relief works in the same way for companies as it does for individuals, with the exception that indexation allowance may be available.
The indexed gain is not taxed immediately but is postponed ('deferred') until the company makes a disposal of the replacement asset without further replacement.
The postponement is achieved by deducting the gain deferred on the old asset from the cost of the new asset.
Where the disposal proceeds of the old asset are not fully reinvested, the gain cannot be fully deferred.
The replacement asset must be bought in the period 12 months before to 36 months after the disposal of the old asset.
A claim must be made within 4 years from the end of the accounting period in which the disposal occurred.

JM Ltd bought a building for use in the trade in October 1994 for £150,000.

The building was sold in March 2026 for £400,000.

In June 2025 JM Ltd had bought some land for use in the trade for £500,000.

The company claims to defer gains whenever possible.

Calculate the chargeable gain on the disposal of the building and the base cost of the land.

The indexation factor from October 1994 to December 2017 is 0.915.

		£
Proceeds		400,000
Less: Cost		(150,000)
Unindexed Gain		250,000
Less: Indexation 0.915 × £150,000		(137,250)
Gain		112,750
Less: Rollover relief		(112,750)
Chargeable gain		NIL

Proceeds are fully reinvested into a qualifying asset within the specified time period (12 months before disposal date), so the entire gain of £112,750 can be rolled over against the cost of the land.

Base cost of the land:

	£
Cost	500,000
Less: Rolled over gain	(112,750)
Base cost	387,250

A Ltd bought land for use in the trade in May 2003 for £200,000.

The land was sold in March 2025 for £350,000.

In September 2026 A Ltd bought a factory for use in the trade for £335,000.

The company claims to defer gains whenever possible.

Calculate the chargeable gain on the disposal of the land and the base cost of the factory.

The indexation factor from May 2003 to December 2017 is 0.532.

		£
Proceeds		350,000
Less: Cost		(200,000)
		150,000
Less: Indexation 0.532 × £200,000		(106,400)
Gain		43,600
Less: Rollover relief		(28,600)
Chargeable gain		15,000

As partial reinvestment has occurred within 3 years of the disposal date, part of the gain can be deferred and part will become chargeable.

Proceeds not reinvested = £(350,000 – 335,000) = £15,000 which will become chargeable and the remaining gain of £28,600 (£43,600 – £15,000) can be deferred.

Base cost of new asset:

	£
Cost	335,000
Less: Rolled over gain	(28,600)
	306,600

2 Depreciating assets

2.1 Definition

An asset with an expected life of a maximum 60 years
Fixed plant and machinery

Note: You will only be examined on fixed plant and machinery and leasehold property with a life of 60 years or less.

2.2 Effect

If the new asset is a depreciating asset:

The indexed gain deferred is not deducted from the cost of the new asset
Instead it is postponed until the earliest of:
1. the disposal of the new asset
2. the date the new asset ceases to be used in the trade
3. 10 years after the new asset was acquired

YR Ltd bought land for use in the trade in April 1998 for £200,000. The land was sold for £350,000 in May 2019. In March 2020 YR Ltd bought fixed plant for use in the trade, costing £390,000.

YR Ltd sold the fixed plant in February 2026.

YR Ltd has a year end of 31 March.

The indexation factor from April 1998 to December 2017 is 0.710.

Calculate the chargeable gains as far as the above information allows for the years ending 31 March 2020 and 31 March 2026.

		£
Proceeds (May 2019)		350,000
Less: Cost		(200,000)
Gain		150,000
Less: Indexation 0.710 x £200,000		(142,000)
Indexed gain		8,000
Less: Rollover relief		(8,000)
Chargeable gain		NIL

Due to all of the proceeds being invested in the replacement asset, full rollover relief is available and so no gain is chargeable in the year ended 31 March 2020.

The gain is deferred and will be chargeable in year ended 31 March 2026, when the depreciating asset is sold/ceases to be used in the trade (February 2026) as this is earlier than 10 years from its date of acquisition (March 2030).

When the replacement asset is a depreciating asset, the gain is deferred as in (b) above. However, if a non-depreciating asset is purchased before the deferred gain crystallises, the original gain may be rolled over against the cost of the new, non-depreciating asset and will only crystallise on sale of the non-depreciating asset.

Roll over relief is the only relief available to a company and is often examined in TX. Ensure that you fully understand the rules, the conditions and how it works.

You may have to write out the rules as well as calculate gains to make sure you can do this for easy marks, as follows:

Mighty Ltd has been offered £160,000 for a freehold factory that it owns, and is now considering disposing of the factory. The company acquired the factory on 15 March 1984 and it now has an indexed cost (cost plus indexation) of £120,000. The factory has always been used in Mighty Ltd's trade.

Explain the chargeable gains implications of each of the following alternative courses of action that Mighty Ltd is considering taking to replace the factory if sold:

1. Acquiring a larger freehold factory for £170,000.

2. Acquiring a smaller freehold factory for £155,000 and using the remainder of the proceeds as working capital.

3. Using the proceeds to pay a premium of £180,000 for a 40-year lease of a new factory (it is possible that a freehold warehouse will also be bought in the next two or three years for an estimated cost of £200,000).

The chargeable gain on the disposal of the freehold factory is £40,000 (£160,000 - £120,000).

(a) Larger freehold factory

The full gain will be rolled over against the base cost of the new factory as all the proceeds are reinvested:

	£
Cost of factory	170,000
Gain rolled over	(40,000)
Base cost of new factory	130,000

(b) Smaller freehold factory

As not all of the proceeds are reinvested, the capital gain element that cannot be rolled over and will remain chargeable will be the proceeds not reinvested of £5,000 (£160,000 - £155,000). This will be immediately chargeable to corporation tax. The balance of the gain will be rolled over as follows:

	£
Cost of factory	155,000
Gain rolled over (£40,000 - £5,000)	(35,000)
Base cost of new factory	120,000

(c) Lease

If all the proceeds are used to acquire a depreciating asset (one with an expected life of no more than 60 years), the capital gain is deferred until the earlier of:

the date that the leasehold property is sold
the date when the leasehold property ceases to be used in Mighty Ltd’s trade
the expiry of ten years from the acquisition date.

Therefore the base cost of the lease remains at £180,000. If, before the held over gain becomes chargeable, a non-depreciating asset is acquired, the capital gain can be rolled over in the usual way. In this question, if the freehold warehouse is acquired in the next two to three years, all the proceeds will be reinvested and so the rollover claim would switch to the freehold warehouse cost of £200,000.

In all the cases above the reinvestment must take place within 1 year before to 3 years after the disposal date if the gain is to be eligible for relief.