roll over relief challenge question! :)

Rr2d213y ago

W bought a warehouse on 1 April 2005 or 100,000. 25% of the warehouse was surplus and was therefore let out. the warehouse was eventually sold on 1 feb 2012 for 260,000. On 1 march 2012 W purchased another factory for use in the business costing 35,000. Calculate chargeable gain on the disposal.

i have calculated the gain as 260,000- 100,000 = 160,000
and chargeable gain as 120,000 - 355,000 = 0 ..since its a negative number.
however im being told that the chargeable gain is 40,000, can someone plz explain? thanks

Former user13y ago#1

Well, 25% of the warehouse will not qualify for rollover relief as it has been let out, therefore if we calculate the gain that is proceeds-cost 260,000-100,000= 160,000

75% of this gain is 120,000, qualifying for Rollover relief and the other 25% will not qualify for rollover relief, therefore a gain that is chargeable now 40,000.

There is no partial re-investment as all of the proceeds from previous asset were used to buy the replacement asset, but the 25% of the factory was not wholly being used for business as 25% of its premises were let out, thus 25% of the factory was for non-business use and thus does not qualify for relief and that 25% will be a chargeable gain now i.e. 40,000 instead of being deferred.

I hope it makes sense!

Wwgk13y ago#2

Immediate chargeable gain is 40,000 - 25% of 160,000 (210,00 - 100,00).

Roll-over available is 120,000.

All proceeds (260,000) re-invested (355,000) - therefore roll-over of 120,000.

Base cost of new facility is 235,000 (355,000 - 120,000)

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