F6-chapter 15

Rollover relief
Special notes on Rollover Relief • Partial reinvestment of proceeds Where the disposal proceeds are not fully reinvested, the surplus retained cannot be rolled over. • Reinvestment in depreciating assets Any asset with a predictable life of not more than 60 years is a depreciating asset The only types of depreciating asset that you need to be aware of are fixed plant and machinery and short leaseholds. Capital gain is not chargeable until the earliest of: 1. disposal of the new asset 2.The new asset ceases to be used for trading purposes 3.10 years since the new asset was acquired
Rollover relief
Overview of Rollover Relief • Rollover relief allows a capital gain to be deferred where the disposal proceeds of the old assets are reinvested in a new asset. The deferral is achieved by deducting the capital gain of the old asset from the cost of the new asset. • The old and new asset must both be qualifying assets and be used for business purposes. Qualifying assets • Land and buildings (e.g. factory) • Fixed plant and machinery • Goodwill
Gift relief for sale at under value
A
(A is deemed to dispose asset at Market Value)
Gift of asset Cost < Consideration < MV MV (X) X1
B
A:
Disposal proceeds Less: Cost Capital Gain Less: Gift Relief for sale at under value Chargeable Gain
James aged 45 gave 40% of his holding in CornLtd to his son when its market value was £200,000. The cost of the 40% holding was £100,000. The assets of Corn Ltd comprised the following at the date of the gift: £ Freehold property 270,000 Leasehold property 130,000 Stock 30,000 Debtors 25,000 Investments 20,000 Plant (cost and proceeds < £6,000) 40,000 Creditors (8,000) 507,000 Required What is the chargeable gain arising and the base cost of the shares to James’ son?
B:
Base cost of asset = MV – Gift Relief
(Rest of the gain is rolled over into the base cost for a subsequent disposal of the asset)
Gift relief for sale at under value Sale at under value: the disposal involves actual consideration rather than being a pure gift but is still not a bargain made at arm’s length. Any excess of actual consideration over original costs is chargeable immediately and only the balance of the gain qualifies for gift relief.
Gain on gift of shares may not all be eligible for relief. Where personal company has investments in its net assets, the gift relief is restricted. Gain eligible for relief will be: Total gain × MV of CBA / MV of CA CBA = chargeable business asset (chargeable assets except investments) CA = chargeable asset (assets not exempt from CGT)
Chapter 15 Business reliefs
Gift relief
Donor no gains no loss Conditions for gift relief: 1.Disposal is made to an individual who is UK resident or ordinarily resident 2.The asset needs only be qualifying business asset in the hands of the donor. Qualifying Business Assets • Assets used for trading purposes by a sole trader • Shares in a personal company (where the individual has at least a 5% shareholding) • Shares in unquoted trading companies
Maxwell bought a workshop used in his trade several years ago for £50,000. A few years later he sold it to his son for £95,000 (when its market value was £210,000) and, along with his son, made a joint claim for gift relief. The son subsequently sold the workshop for £250,000. Required Calculate the chargeable gain on disposal of the workshop by Maxwell and his son.
rollover
CG= 200- 200=0 Cost of B= 500-200=300
Special Notes on Rollover relief
2) Partial reinvestment: E.g. C Ltd. Dispose Asset A: Proceeds Cost Partial
reinvestment
300 100 250
CG = 200
Pt
Surplus=300-250=50 (chargeable immediately)
Qualify for rollover relief: CG= 200 Cost of B= 250
rollover
Rollover relief
Time requirements: • The new asset must be purchased during a period of 1 year before the sale of the old asset and 3 years after the sale. • The new asset must be brought in to business use at the time that it is acquired.
(Balancing Figure)
Then, calculate B.F.
X2
(First Calculate X2=Actual consideration - cost)
B: Base cost of asset = MV – Gift Relief for sale at under value (Rest of the gain is rolled over into the base cost for a subsequent disposal of the asset)
Rollover relief
E.g. C Ltd. 1) Dispose Asset A:
Fully reinvested