Business Asset Rollover Relief should be one of the simplest pieces of tax legislation. It allows you to defer paying Capital Gains Tax (CGT) when selling land, buildings or fixed plant and machinery by purchasing a new qualifying asset. However, like many areas of tax, it is not that simple and there are some restrictions to how rollover relief can be applied, factors that limit the scope of the relief as well as key considerations to make before purchasing a new asset.
CGT on all farming assets following the Autumn 2024 Budget is now payable at either 18% or 24%, depending on the level of a person’s income . Previously, gains on land and farm buildings were taxed at 10% or 18%, while gains on residential properties were taxed at a higher rate of 18% or 24%.
Has the old asset been used for business purposes?
If part of the property that has been sold has always been rented out, for example a cottage let under a shorthold tenancy, then part of the gain does not qualify for rollover relief.
Has the old asset always been used for business purposes?
Similarly there is a restriction on relief if part of the asset sold was only used for business purposes for part of the period of ownership. An example would be if a block of land was rented out under an Farm Business Tenancy for a five-year period.
Does all of the new asset qualify for rollover?
To rollover all of a capital gain, all of the proceeds have to be reinvested in qualifying assets. Where only part of the proceeds are reinvested, the taxable capital gain is the amount not reinvested. For example, a farmer who sells an asset for £1 million, and has made a gain of £400,000, but only reinvests £900,000 has a chargeable capital gain of £100,000 that was not reinvested.
Has the new asset been purchased by the same person?
Capital gains are charged on individuals rather than businesses. It is therefore crucial that replacement assets are purchased by exactly the same person who sold the old asset. A farmer selling an old asset who then jointly buys a new farm with their spouse would only be able to rollover half of the proceeds and a large tax bill remains.
Has the new asset been used for business purposes immediately?
It is a requirement that the new asset be ‘immediately taken into use for the purpose of the business’. Thus if part of the new farm is subject to a short-term tenancy when it is bought, this part does not qualify. If part of the asset needs repairing or renovating, it can still qualify as long as the work is done as soon as practicably possible.
Has the new asset been purchased within the time limits?
The new asset has to be purchased within specified time limits – no more than twelve months before the old asset was sold and three years after. These limits run from the date of exchanging contracts, not from the date of completion. It is possible to ask HMRC to extend these limits, for example if transactions are delayed by circumstances outside your control or that you are unable to find suitable assets to purchase.
It is also possible to make a provisional rollover claim if you have not purchased the new asset at the time the tax is due for payment. This does however mean that interest will be payable if you change your mind and do not purchase new assets.
Can part of the proceeds been used to purchase livestock or machinery?
Full relief is only due if all the proceeds are invested in qualifying assets, namely land, farm buildings and fixed plant within buildings. If used to purchase livestock and moveable machinery this would not qualify for rollover and part of the gain will be taxable.
Can part of the proceeds be used to repay business borrowings?
Similarly, if business loans are repaid with part of the proceeds from the old asset, then only part of the proceeds will be reinvested and part of the gain is taxable.
Do I still qualify for rollover if I let my new land on a grazing licence?
It is crucial that the new asset is used for the purposes of a trade. This means that the owner must be taking commercial risk rather than renting to a third party. It is essential that the landowner is involved in the husbandry of the land – applying fertiliser and controlling weeds – and is not receiving a fixed income. Failure to do this will mean HMRC will disallow the rollover claim and charge the tax in full
Rollover relief must be claimed within four years of the end of the tax year you bought the new asset (or sold the old one, if that happened after).
If you claim rollover relief when purchasing new assets, you will not pay any tax until you sell the new asset. You may then need to pay tax on the gain from the original asset. Rollover is only a deferral of tax which will become payable when the replacement asset is sold and so this must be considered when it comes to future tax planning.
If you would like advice about whether your assets qualify for rollover relief, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
