CGT roll over!

darkman13

Hi guys just wanting to ask, to someone who can answer this q. how many years or months do you get to re invest, roll over relief,on capital gains tax? and does it have to be the same business or can you venture in to new fields!

zygurat789

The time window is one year before to three years after the disposal. The new assets must qualify as "business" assets

KPR11

darkman13 wrote: »

Hi guys just wanting to ask, to someone who can answer this q. how many years or months do you get to re invest, roll over relief,on capital gains tax? and does it have to be the same business or can you venture in to new fields!

You also need to note that there is a difference between roll over relief, which applies to assets that have useful economic life greater than 60 years, and hold over relief which applies to assets with useful economic life of less than 60 years

jimmo

KPR11 wrote: »

You also need to note that there is a difference between roll over relief, which applies to assets that have useful economic life greater than 60 years, and hold over relief which applies to assets with useful economic life of less than 60 years

Am I missing something here?
My understanding is that Roll Over Relief is available if you dispose of a business asset and acquire a new business asset.
http://www.hmrc.gov.uk/helpsheets/hs290.pdf
Hold Over Relief is available if you gift a business asset.
http://www.hmrc.gov.uk/helpsheets/hs295.pdf

KPR11

jimmo wrote: »

Am I missing something here?
My understanding is that Roll Over Relief is available if you dispose of a business asset and acquire a new business asset.
http://www.hmrc.gov.uk/helpsheets/hs290.pdf

Correct. Except there are two types of rollovers that are possible depending on what asset you buy.

1. If you buy a non-depreciating asset e.g. land then you rollover the gain on to the asset and it may become chargeable when you dispose the new asset. For example you initially bought some land for 100, disposed it for 200 and then bought land 2 for 500 your gain can be rolled over and your base cost for land 2 becomes 500 - 100 = 400. Now if you sell land 2 for 300, you get a loss of 100 and if sold for 400 no gain arises. This gain / loss only crystalises when you sell the asset.

2. If you buy depreciating asset i.e. asset with a life of 60 years or less then the gain is deferred and be chargeable at the earliest of the following:
• when you dispose of the new assets, or
• when you cease to use the new assets in your trade, or
• 10 years from when you acquired the new assets

this type of rollover is also known as hold over relief because the gain is not actually rolled over but simply deferred / held till it becomes chargeable. Now take an example similar to the one above, you initially bought some land for 100, disposed it for 200 and but now buy a fixed plant which is depreciating for 500 your gain of 100 is set aside and your base cost for the plant is still 500. At the earliest of the above the gain will crystalise so after 10 years you will have a gain chargeable if you still hold the asset and use it i.e. no disposal. (bottom of page 3 on the help sheet - depreciating asset) - this is what I was trying to highlight

jimmo wrote: »

Hold Over Relief is available if you gift a business asset.
http://www.hmrc.gov.uk/helpsheets/hs295.pdf

This is gift relief which is some times also referred to as holdover relief as it sort of works in a similar way i.e. it defers the gain and can crystalise if for example the transferee migrates within 6 years of receiving the gift.


It is a common mistake to think one is referring to the other as hold-over is used to describe two different reliefs - hope that is clear and I have not unknowingly confused anyone.

darkman13

Very interesting posts so far and what confused me or still kinda does is three accountant friends telling different things! perhaps the best way is for me to explain the situation...

We've been running a small buthers, a family business since 1998 from a specific location and in 2004 my dad purchased the freehold of the building we were leaseholders of for £145.000, under his name, not the businesses. The business continued to this day where its not profitable anymore, for many reasons. Now we found a buyer for the lease and freehold all in one package for £250.000 we accepted and its halfway with solicitors. We notified our accountant and said we were selling up to open or buy a different business, he initially stated no matter what you do you have to pay around 40k which is a big hole in our budget to buy a new place. My dad asked another accountant and he said untill jan 31st you have nothing to pay and then you pay a certain then the full in en of three years. Since we got two diff answeres i asked a third one and she said you can buy a business and roll over to that, however it must be under the same or contane same type of business you are offloading from ie another meat business. And thats when i decided to ask the people here, who if any is right and i have read hmrc details but they arent clear to me ither!

What we would like to do is sell this freehold close business down and go and buy somethingelse and continue running it, but if i am going to pay 40k of CGT then i wont be able to afford a profitable business and might as well not bother selling, when i say i mean as a collective family!

p.s. we are not really selling the business my dad is selling the freehold which is under his name and the business which i am the director will be closing due to its current loss rate! so he is selling his freehold to invest ither in a business or a flat is it possible, if so how?

Pennywise

darkman13 wrote: »

p.s. we are not really selling the business my dad is selling the freehold which is under his name and the business which i am the director will be closing due to its current loss rate! so he is selling his freehold to invest ither in a business or a flat is it possible, if so how?

When I first read your post, I thought your accountant was losing the plot, but finally getting to your last paragraph, it starts to become clearer, as you didn't mention the potentially most important aspect. That is that you imply the business is a limited company, which apparently trades from the freehold premises. So basically your father owns the property, but the actual business is conducted via a limited company. So, let's have some facts. Who owns the company, how is the sale price split between the property owned by your father and the business goodwill, equipment etc owned by the company. Is the company selling the assets or are you selling your shares in the company. You have three basic problems here. Firstly, your father only has one annual CGT allowance and could be liable to CGT at 28% if the amounts are large, whereas if the property had been shared equally, you could have had more than one annual allowance and more of the profits could have been taxed at 18% or 10%. Entreprenneurs relief may have been lost on the property if your father charged the company a rent for it. As for the company, you'll probably have double taxation if the buyer isn't buying the company - first on the profit on asset sale and second on taking the money out of the company. Also, your father must reinvest in a business to claim rollover relief - a flat or other dwelling isn't a business. All in all, it sounds very complicated, with lots of different reliefs and charges interacting. This is a classic case where there may be no tax at all to pay, or a lot of tax, or a bit now to save tax later. A couple of brief chats with accountants and posting on a forum won't give you the professional advice you need. Your current accountant is best placed to know the score and you need to talk to him about how he has arrived at his figure, let him explain why your other two discussions aren't right and ask him to help structure the deal better to reduce tax - that's assuming you've told him your exact plans. Have you actually had a proper meeting with him to discuss the plans properly, or is his figure of tax just as a result of a brief telephone call without him having the chance to properly think about things - you can't expect a reasoned response in a few minutes - I'd say that a proper review and proper advice would take a good few hours in a complicated case like this!

darkman13

Pennywise wrote: »

When I first read your post, I thought your accountant was losing the plot, but finally getting to your last paragraph, it starts to become clearer, as you didn't mention the potentially most important aspect. That is that you imply the business is a limited company, which apparently trades from the freehold premises. So basically your father owns the property, but the actual business is conducted via a limited company. So, let's have some facts......

It is a very complicated issue and our accountant is as he says researching in to this field as he has never come across a task like this before. I own the business 100% as a LTD company and the business is not profitable and there for about to close down with loss, with equiptment to be sold off to pay the dept, thats one side. On the other hand my dad owns the freehold and he wants to sell that commercial freehold and buy a business that he can run asap. I hope that make sence.

chrismac1

How about your father buying a holiday let in the EEA zone - those are taxed as businesses, I am pretty sure they qualify for rollover relief. (But check with your accountant, also if I am wrong other posters will soon tell you!)

What I can say is that holiday lets are doing pretty well in my neck of the woods which is the Lake District.

darkman13

chrismac1 wrote: »

How about your father buying a holiday let in the EEA zone - those are taxed as businesses, I am pretty sure they qualify for rollover relief. (But check with your accountant, also if I am wrong other posters will soon tell you!)

What I can say is that holiday lets are doing pretty well in my neck of the woods which is the Lake District.

it is a good idea, but he has a mortgage and still needs a regularish income, and he really is looking to doing another business, coffeshop or even a local supermarket, but if the cgt takes a big chunk its not so possible, but in common sence he can pay about 40k now to government or he can buy a business and pay business rates, national insurance contrb. coorparete tax income tax etc for every year, i mean common sence tells me its better for the government if he ventures in to new business and pays alot more taxes regularly than one payment of cgt!:cool:

jimmo

As I read it so far, you own the business “100% as a limited company“. So you, personally, own 100% of the shares in the company and your father owns none.
If that is the case, your father either leases the premises to you personally or leases the premises to your company, or allows you personally, or the company to use the premises rent free. I cannot see that he can possibly qualify for Roll Over Relief on his sale of the freehold.
Take a look again here
http://www.hmrc.gov.uk/helpsheets/hs290.pdf
Look at “Getting Relief” at the bottom of page 1.
Can you see a way in which your father can qualify?
The whole issue is far more complicated than just that and I think Pennywise’s post at # 7 completely covers all the issues so please read that again.