Can you take advantage of rollover relief?
Added to profit
Unlike individuals, companies don’t pay a separate capital gains tax. Instead, any capital gains are added to the company’s income to arrive at the total amount chargeable to corporation tax (CT).
Scenario. Let’s say your company sells its existing business premises (none of which is sublet) at a substantial profit. The calculations are quite straightforward; proceeds of the sale are £500,000, less costs (plus indexation allowance up to 31 December 2017 after which it no longer applies) of £320,000, leaves a taxable gain of £180,000.
Tax bill. Your company would pay CT on this at 19%, so the CT bill is £34,200.
Rollover relief
A capital gain from a qualifying business asset can be rolled over against the purchase of another qualifying asset (see The next step ). This rollover relief reduces the cost of the new asset(s), which means that when it’s eventually sold the capital gain will reappear.
Tip. The companies in a gains group (a company and its 75% owned UK subsidiaries) are treated as a single entity for the purposes of rollover relief. This means that the gain on a qualifying business asset sold by a company in a gains group can be rolled over when another qualifying business asset is purchased by any company in the gains group within the qualifying period (twelve months before the first asset is sold or 36 months after).
Tax bill. If your company uses the sale proceeds to help fund the purchase of a bigger and better property, the gain can be deducted from the cost. So there is no immediate CT bill for your company.
Informing HMRC
When your company submits its accounts and CT return for the accounting year in which the property was sold, it should make a rollover “declaration” at the same time.
Trap. If one of the assets you’ve reinvested in is sold in the near future, then part of the rolled over gain will become payable. Are you likely to sell one of the replacement assets you have bought? You might not think it likely at present, but as time goes by your circumstances may change.
Tip 1. Delay finalising your rollover claim for as long as possible; once submitted (and accepted by HMRC) it cannot be revised. If your business is rolling over a gain into two or more assets, submit a provisional declaration (see The next step ). In other words, claim provisional rollover relief based on assumed facts. You don’t need to finalise the claim for four years from the end of the accounting period in which the gain arose.
Tip 2. When you eventually submit the full claim, you choose how to match the acquisitions against the disposal. You may be able to save a great deal of tax by matching most or all of the original sale proceeds against asset(s) which you don’t intend to sell.
For a list of qualifying assets and a free sample rollover declaration, visit http://tipsandadvice-financialcontroller.co.uk/download (FC 10.10.09).
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