Capital Gains Tax -Business Asset Rollover Relief
Business Asset Rollover Relief (BARR) allows individuals and companies to delay paying any Capital Gains Tax (CGT)/Corporation Tax due when they dispose of business assets and reinvest the proceeds in buying qualifying business assets. Eligible assets include business premises, Furnished Holiday Lettings (FHLs) and fixed plant and machinery.
To qualify for BARR, the original assets must be used in your business. The ‘replacement’ business assets must also be used in your business and must be purchased within three years of disposing of the original assets, or up to one year before.
Your business must be trading when you dispose of the original asset and when you buy the replacement ones.
FHLs qualify as a trade/business for the purposes of BARR.
Land and buildings must be occupied and used only for your trade if you wish to claim relief. If the land or buildings have been provided by you for use by your personal company, it’s that company which must occupy and use them.
Qualifying assets include land and buildings, fixed plant and machinery and goodwill. The replacement asset in most instances may be a different asset.
For companies, intangible assets such as goodwill do not qualify for BARR. Instead, these disposals are dealt under a separate rollover regime. E.G. a company selling land would not be able to claim BARR if it reinvested the proceeds in goodwill and vice versa.
How it works
If you reinvest all the proceeds from the original asset disposal in new business assets, then the CGT due on the disposal does not need to be paid to HMRC until the replacement asset is disposed of.
For example, you sell a shop for £100,000 and make a gain of £30,000. You buy a new shop for £125,000 and claim roll-over relief. The cost of your new shop will be reduced to £95,000 when you calculate the gain or loss you will make if you sell it.
If only part of the proceeds from the original asset disposal are reinvested, some of the CGT will be due at the normal time and some can be deferred. The amount of the original gain that is subject to CGT at the normal time is the lower of:
- The full gain; and
- the amount of disposal proceeds which is not reinvested in the replacement asset.
Any remaining portion of the gain can be ‘rolled over’ and set against the purchase cost of the replacement asset.
Partial BARR may be available if the assets were only partly used for trade purposes during the period of ownership.
How to claim
For individuals, claims are made as part of the self-assessment tax return, or as a standalone claim.
For companies a formal written claim to HMRC is advisable alongside making the claim on the corporation tax return.
The HS290 form, linked below, can be used to make the claim.
Individuals can make a claim within 4 years after the end of the tax year in which the later of the following took place:
- the disposal of the old assets; or
- the acquisition of the new assets.
For companies the time limit is based on four years from the end of the accounting period in which one of the two events listed above occurs.
Overview of BARR: https://www.gov.uk/business-asset-rollover-relief
More detailed guidance and Form HS290: https://www.gov.uk/government/publications/business-asset-roll-over-relief-hs290-self-assessment-helpsheet
For further information on Business Asset Rollover Relief, please contact Joe Wilson on 023 8046 1237.