- This topic has 7 replies, 3 voices, and was last updated 9 years ago by
.
- Posts
Hello sir
i watched your video on roll over relief which was very helpful, thank you!
i have a doubt under non business useThis is related to your following question:
Jake purchased factory in May 1991 for £540,000. He let out 15% of the factory. In July 2014 he sold the factory for £600,000 and bought
another factory in August 2014 for £650,000 claiming rollover relief.when a factory is being used for a non business purpose a chargeable gain will arise. In your question, all of the sales proceeds are being utilized for the purchase of the new asset.
So what would happen if all the proceeds are not utilized? Will this result in an additional chargeable gain?is the following correct?
for eg
if Jake bought the new factory for 550000,
therefore chargeable gain of 650000-500000= 50000 (as all sale proceeds are not utilized)
PLUS the chargeable gain as a result of the non business use which is
15% * 60000=9000
so the total chargeable gain is 50000+9000=59000therefore the rollover relief will be 60000-59000=1000
Base cost of new assest= 650000-1000=649000
Following the scenario David has painted of Jake reinvesting only £550,000. What I think will apply is this:
Sales Proceeds £600,000
Less Cost. (£540,000)
Gain. £60,000
Rollover relief £10,000 restricted to 85% (£8,500)
Chargeable gain. £50,000 plus 15% non biz (£1,500) = £51,500Since the entire sales proceeds was not reinvested hence partial rollover relief applies. £50,000 (£600,000 – £550,000) will become immediately chargeable for CGT.
The rollover relief relief should have been £10,000 the balancing figure. However because the asset has only 85% business use, only £8,500 will be available for relief. The balance non business portion of £1,500 will also be immediately chargeable bringing the total chargeable gain to £51,500.Sir, please is my answer correct. Please let us know.
Thanks
You wrote Jake bought factory on May 1999 for £540,000. That’s in the scenario as the initial cot of old factory.
Yes. The cost of the old factory but I hope the professor will still reply so that we will be double sure the solution I have given is right.
The gain arising on the disposal is 60,000 of which 85% (business use) is eligible for rollover relief ((51,000) and 15% (9,000) is immediately chargeable.
The business part of the proceeds is 510,000 (85% of 600,000) so if a new business asset has been purchased at a cost of 550,000 and this asset is 100% used for business then all the business proceeds are deemed reinvested so the full gain eligible for rollover (51,000) will be deferred. The deemed cost of the new asset is therefore 550,000 – 51,000 = 499,000
Hope this helps
- You must be logged in to reply to this topic.