Business asset rollover relief is a valuable tool for deferring capital gains tax when selling business assets and reinvesting in new ones. This guide breaks down how this tax relief works and whether your business qualifies. For more tax reliefs that you can claim as a business owner, check our ever-popular 8 Tax Claims That You Probably Didn’t Know Exist.
By leveraging business asset rollover relief, you can align your capital gains tax planning with active reinvestment in your business. Instead of paying capital gains tax immediately on the sale of profitable assets, this relief allows you to "roll over" the gains into the cost of replacement assets. This effectively delays your tax liability until the new assets are eventually sold, giving your business more flexibility and resources for growth.
What is Business Asset Rollover Relief?
Business asset rollover relief is a valuable capital gains tax relief that allows you to defer Paying tax on gains from selling business assets. This relief applies when you reinvest all or part of the sale proceeds into qualifying replacement assets within a specified timeframe.
Here’s how it works: the base cost of your new asset is reduced by the amount of the deferred gain, meaning you won’t have to pay capital gains tax immediately on the original sale. However, the deferred gain will become taxable when the replacement asset is eventually sold. This relief offers a practical way to manage your tax liability while reinvesting in your business.
Let's say you sell a factory for £300,000 that originally cost you £200,000, creating a £100,000 gain. If you purchase a new factory for £350,000, you can claim rollover relief to defer the entire £100,000 gain.
The deferred gain reduces the base cost of your new asset from £350,000 to £250,000. You won't pay capital gains tax now, but when you eventually sell the new factory, your gain will be calculated using the reduced base cost of £250,000.
What are the Conditions for Rollover Relief?
Several specific conditions must be met to qualify for business asset rollover relief:
Timing Requirements
To qualify, the replacement asset must be purchased within 3 years of disposing of the original asset or up to 1 year prior to the disposal. In exceptional cases, HMRC may grant an extension to these time limits.
Business Use Requirements
To qualify, both the old and new assets must be actively used in your business operations. Additionally, your business must be actively trading at the time you sell the old assets and when you purchase the new ones.
Eligible Assets
The relief covers certain types of business assets, including:
- Land and buildings actively used in the business
- Fixed plant and machinery, such as printing presses or manufacturing equipment
- Business goodwill
Reinvestment Requirements
To secure full relief, the entire proceeds from the asset sale must be reinvested. If only a portion is reinvested, you may still qualify for partial relief. However, capital gains tax will be immediately applied to the amount not reinvested.
How Long Do You Have to Claim Rollover Relief?
To claim business asset rollover relief, you must submit your application within four years from the end of the tax year in which either:
- The gain was made from selling the old asset, or
- The new asset was acquired (whichever occurs later).
Example of Claim Deadline
If you sell an old asset in May 2023 and purchase a replacement asset in August 2024, you have until 5 April 2029 to claim the relief. However, the relief is not granted automatically—you must actively apply for it by completing form HS290 and submitting it alongside your self-assessment tax return.
Can Rollover Relief Create a Loss?
No, business asset rollover relief does not create a loss. Its purpose is to defer gains, not to produce losses for tax purposes.
That said, it’s essential to consider how this relief impacts your overall tax position and financial planning:
Depreciating Assets
When reinvesting in "depreciating assets"—those with a lifespan under 60 years, such as machinery or fixed plant—special rules apply. Instead of adding the gain to the asset's base cost, the gain is "frozen" until one of the following occurs:
- The new asset is sold
- The asset is no longer used in your business
- 10 years have passed since its acquisition
These rules ensure gains are deferred while the asset remains integral to your operations.
Partial Reinvestment
When you reinvest only part of the proceeds, you'll need to pay capital gains tax right away on the portion not reinvested. The remaining gain can then be applied to offset the cost of the new asset.
Key Considerations for Business Owners
Planning Your Asset Replacement Strategy
When claiming rollover relief, it’s essential to consider your long-term business goals. Keep in mind that the deferred gain will eventually become taxable, so it’s crucial to have a well-thought-out strategy in place to manage future asset disposals effectively.
Keeping Detailed Records
Keep detailed records of the following:
- The original purchase prices and dates
- Sale proceeds and disposal dates
- Replacement asset costs
- Proof of business use for both the old and new assets
Find out more about what documents to keep before making a tax claim if you are a self employed.
How Debitam Can Help You
Navigating business asset rollover relief requires strategic planning and expertise. At Debitam, our tax specialists are here to help you:
- Assess whether your asset disposals qualify for rollover relief
- Optimize tax savings when replacing business assets
- Ensure you meet all deadlines and compliance requirements
- Manage all paperwork and submissions seamlessly
- Integrate rollover relief into your broader tax strategy
Don’t let complex tax rules stand in the way of valuable relief. Contact Debitam today to discover how rollover relief can support your business and maximise your financial efficiency.
