Agricultural Addition Issue 21 AutumnWinter 2017-18 - page 6

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addition
• summer 17 • Issue 39
agriculture
• autumn 17 • Issue 21
ROLLOVER RELIEF -
COMMON PITFALLS
Rollover relief results in putting off the capital gains tax (CGT) charge until the replacement
asset is sold. It works because the capital gain arising on an old asset is calculated to reduce
the base cost of the new asset. CGT is worked out on the difference between the base
(acquisition) cost and the sales proceeds at the point the asset is disposed of.
The relief can be very useful for farmers and you can rollover into a new asset as many
times as you like but there are frequently mistakes which can end up in no relief being
obtained.
Timing errors:
a) The reinvestment period
is not met.
New asset must be acquired
within 12 months before or
36 months after the disposal
of the old asset
Ownership issues:
b) The old asset and the
new asset are not in
the same ownership.
Same ownership is of
paramount importance.
E.g Mrs X has the gain
and the partnership buy
the new asset.
c) You are not trading when
you sell/buy an asset
Does the asset qualify for
relief?
d) ‘Qualifying assets’ are:
• Land and buildings
used within your trade
• Improvements to land
and buildings used
within your trade
• Fixed plant and
machinery e.g. grain
store (NOT a tractor)
• Goodwill
• Basic Payment
Entitlements
e) A common
misunderstanding is
the potential to rollover
into a residential buy
to let or office block.
These are not ‘qualifying
assets’. The reason for
this is that the income
received is rent which is
an investment and not
a business asset.
Amount re-invested
f) Not all of the net sale
proceeds on the old
asset are reinvested in
the new asset
Partial Relief
To obtain full deferral of
the gain on the old asset,
all the proceeds (net of
sale’s costs) of the old
asset must be fully
reinvested into the
new asset(s).
If not, then only partial
rollover relief is obtained.
The first tranche is re-
investing the original base
cost, followed by utilising
the gain. The amount of
the gain not reinvested
becomes your taxable
gain for capital gains tax.
Example:
Sell land for £300,000 in
March 2014 and made a gain
of £250,000. You purchase
new land for £200,000 (b)
in December 2016.
Old Asset​
£
Sale Proceeds
300,000
(March 2014)
Less Cost (a)
​(50,000)
Gain​
250,000
Less rollover relief (150,000)
(a-b)​
Chargeable Gain 100,000
(amount not reinvested) ​
​The gain above can be
reduced by the available tax
free annual exemption of
£11,300 for 2017/2018 before
CGT is calculated at 10%
or 20% depending on your
marginal rate of tax.
The new assets’ base cost is
calculated as follows:
New Asset
Acquisition Cost 200,000
(December 2016)​
Less rollover
(150,000)
relief on old asset​
Revised New
50,000
Asset Base Cost ​
1,2,3,4,5 7,8
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