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Business asset disposal – Rollover Relief

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If you are disposing of business assets you may be eligible for rollover relief provided the company purchases another qualifying asset in the year prior to the sale or three years after the disposal.

Rollover relief is available when the proceeds from the disposal of an asset (the old asset) are reinvested in another asset (the replacement asset).

The consequence of this is that the base cost of the replacement asset is treated as reduced by the chargeable gain deferred. If some of the proceeds are retained, the proceeds retained remain taxable (see Example 1  and 2).

Example 1

A farmer sells some land for £2m. The chargeable gain arising is £1m. He purchases additional land costing £3m. He is able to claim rollover relief and the gain of £1m will be deferred. The base cost of the land that is acquired will be £2m for tax purposes.

Example 2

Business premises are sold for £250,000 these had originally cost £150,000, so the chargeable gain is £100,000. Shortly afterwards a new premises is purchased for £225,000 the chargeable gain arising in the year of sale will be reduced to £25,000 (£250,000-£225,000). The chargeable gain deferred will be £75,000 (£100,000- £25,000).

overpayment relief may be made no later than four years after the end of the tax year concerned.

Transferring properties to spouses for income tax purposes

In order to utilise a spouse’s tax banding where one is a higher rate and the other is a basic rate there are a few things that should be considered.

If only the income stream is transferred to the spouse and the transferor retains the capital in the property, the income stream will still be taxed on the transferor to prevent tax evasion.

For example:-

To transfer 50% of the income stream, 50% of the capital value of the property must also be transferred.

Transfers between spouses take place at a nil gain nil loss for capital gain tax purposes.

There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.

 Other considerations:-

Stamp Duty Land Tax should be considered in the transfer as there is no exemption from SDLT for transfers between spouses.

The transfer of beneficial ownership of a property does not require a conveyance of legal title, but a written declaration which is signed and dated can prevent disputes with HMRC over validity and commencement of the transfer.

Private Residence Relief may also be lost where the property was the main residence of the transferring spouse and not the main residence of both the transferor and transferee.

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