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Reliefs apply to business assets and were introduced to encourage investment.
Several reliefs require to quality that the asset being disposed of must be used in a ‘trade’ or for shares be shares in a
‘trading company’.
- This is important as it denies relief to disposals of assets held for non-trading purpose – held as investment etc.
Roll-over relief on the Hold-over relief on gifts Roll-over relief on Business asset disposal relief – TCGA s169H-S
replacement of (+ gift element in sale at incorporation of a
qualifying business undervalue) of business business – TCGA
assets – TCGA assets – TCGA s165 and s162
ss152-159 Sch 7
What is it? Encourages businesses Available to those who Where a business is Applies only on disposal of certain business assets. Not all
to expand and thrive by disposes of business transferred by a sole business assets apply.
allowing CGT to be assets by way of gift or gift trader or individual
postponed when the by way of sale at an partnerships to a new
consideration obtained undervalue. or established
by disposal is applied to company in return for
acquire another It postpones the tax shares.
qualifying asset like a liability. Allows business
replacement. assets to be given away Roll-over relief given to
without a tax charge on the allow any gain on
donor (they have no disposal to be
proceeds to pay the tax). deferred. Postpones
the CGT given that no
cash has been
realised with which to
pay the tax.
Conditions Qualifying assets: 1. Gift or gift element. 1. business must be There has to be QUALIFYING BUSINESS DISPOSAL:
for relief to o S155 TCGA 2. Chargeable business transferred as a going
apply o Land, buildings, asset: concern. Sole trade or partnership interests:
and goodwill. o Used in donor’s trade - Carried on 1. disposal of the whole or part of a business:
o Must be used IN or his interest in the as the same o Business disposed as a going concern or
THE TRADE. asset. business o Assets are disposed of following cessation of the
o Company shares o Shares in trading just a business – provided the assets were used.
are NOT QA. company not listed. change of
ownership. 2. The interest in the business as a whole must have been
o Fixed plant and o Shares in personal
owned either – 2 years ending year of disposal or ending
machinery are QA trading company cessation.
but a sale of this even if listed. 3. Only assets used for the purpose of the business carried
will rarely produce 2. The whole gain can
o Assets owned by SH on by the individual or P are eligible.
be rolled over only if
a gain due to and used by his o Shares and securities and others held as investments
the consideration is all
depreciation. Any personal trading are excluded.
in shares issued by the
roll over relief will company (5% company. o Goodwill is excluded with conditions.
be restricted if they owned). - If 50% is in
are wasting assets shares then
– s154. Not apply to shares if Company shares
you can
donee is a company. 1. Company shares may qualify if:
roll-over
o It is trading company and it’s his personal
3. Both the donor and 50% of the
Who must they be company (5%) and either or both he is
owned by? donee must elect for relief gain.
beneficially entitled to 5% profits or in event of
o Sole trader used in to apply (as donee is disposal of share capital he would be ben
his trade, taking on the CGT in the entitled to 5% proceeds AND
future). This must be made 3. Business must be
o Partnership used in o Disponer is employee.
no more than 4 years after transferred with all of
P trade, its assets, ignoring
o Individual partner end of tax year of the
disposal. cash.
and used in P 2. Requirements of profit ability apply for 2 years ending
trade, the disposal or the date company ceased to be a trading
o Individual SH and company – provided disposal was within 3 years of
used in trade of cessation.
that comp. Must be
SH ‘personal 3. Trading Company = must not have activities that include
to a substantial extent activity other than trading ones.
company’ = they
Restricts extent they can hold cash reserves or
must own 5%
investments.
voting shares.
Associated disposals
1. Sometime assets used are not owned by the business
Time-limits:
but by an individual. Disposals of these outside the
, The replacement must business might qualify if it was used for purpose of the
be acquired within one business run either by:
year before of 3 years o Partnership where the individual was partner or
after original disposal o Company in which individual’s shares qualify
unless extension under the section above.
allowed by HMRC.
2. Only qualify if disposal is associated with a qualifying
disposal of the individual’s interest in the P or comp
shares. And if disposal is part of the withdrawal of the
individual from business.
3. Asset must have been owned by the individual for at
least 3 years and used throughout period of 2 years ending
with earlier of disposal of interest or shares which the asset
was associated or cessation of the business which used
the asset.
Application Liability of CGT is Chargeable gain must be Gain is rolled over by Relief qualifies the gains for a special tax rate of 10%.
of the relief postponed at least until calculated in usual way. notionally deducting it
the disposal of the Gain – market value = from the acquisition There is a restriction as you cannot claim for more than £1
replacement asset. lower acquisition cost. cost. million of gains.
- Lifetime restriction – up to a million spread over
It rolls over the gain from When donee eventually Cannot use annual time and different disposals.
the disposal into the disposes of the asset the exemption.
acquisition cost of the lower acquisition cost is
replacement. deducted from sale price Where the conditions Further restriction on amount of gain if:
o Gain is notionally to find the gain. are met HMRC apply - the asset was not used for purpose of business
deduced from - Their gain will the relief throughout disponer’s period of ownership,
purchase price to include AUTOMATICALLY - if only part of asset was used by the business,
give a lower cost held-over gain + unless you elect not to - if individual was involved in business for only
for use in future any gain during use. part of the time or
CGT calculations. ownership. - Must be - if rent was charged for the use.
o A future disposal made no
may produce gain later than 2nd
that comprises Then consider any reliefs anniversary Any claim must be made on or before first anniversary of
again! Can be repeated. of 31st Jan 31st Jan following tax year in which disposal was made.
rolled-over gain
and any gain on the following the (Jan 2023 for disposal in 20/21).
If they die without tax year of
replacement asset. disposing then all the incorporatio
gains accumulated will n.
o S153 restrictions escape CGT.
where only part if
the consideration Cannot use annual Different if shares are
was used to exemption. then sold before the
acquire new asset. end of the tax year
that follows the tax
year of incorporation
Cannot use annual - = first
exemption as well on the anniversary.
gain before its
rolled-over.
Any claim must be
submitted no more than
4 years after end of tax
year of the acquisition of
replacement.
Example: pg413 Example: pg414 Example: pg416
Gain of 30,000 and J gives M business worth Business valued at
claims roll-over relief. 100000 where total gains 100,000 and X
- No CGT that are 20000. receives 100,000
year as its worth of shares in
postponed - J pays no CGT exchange.
- Take the gain - J and M both If X makes 25k gain on
off of the elect to hold the disposal and rolls
purchase price over so adjusted over the gain then he
acquisition cost does not need to pay
(80000 –
is 80000 (market CGT.
30000 =
50000) value – gain.
Acquisition cost of
100k – 80k).
shares in other
company is business
, - Cannot use M sells business for value – the gain =
annual 110000: acquisition cost
exemption 10000 – 25000 =
Sale price – adjusted 75000.
acquisition cost = gain
Later sells new premises which CGT will be owed When X eventually sell
that he bought for 50000 on. shares he can only
and sells for 125000: (110000 – 80000 = 30000) deduct acquisition cost
Proceeds – adjusted If not electing again then of 75000 when
acquisition cost = the annual relief can be used calculating the gain.
gain this year to reduce gain.
(125000 – 50000 =
75000) Interaction with IHT – pg
415
Without roll-over the
gain would have only
been 45000 – PAY
MORE GAIN LATER
ON.
Interrelation If using this then cannot BADR cannot apply. BADR cannot be used Cannot be claimed when using hold or roll over reliefs.
between use BADR not annual Cannot use annual neither can annual
reliefs and relief. exemption. Cannot be exemption. Cannot Annual exemption can be used to reduce gains before this
exemptions used with the roll-over use at same time as rate is applied.
Cannot generally be reliefs. roll-over relief or
used in conjunction with hold-over.
hold-over or roll-over
relief on incorporation. If part consideration is
cash and part share it
may be possible to use
roll-over relief on
incorporation for the
proportion of gain
attributable to part of
business exchanged
for shares leaving
BADR and annual
exemption to be used
on the proportion sold
for cash.
Other reliefs:
o Investor’s relief
TCGA ss169VA-VR and Sch 7ZB
Applies to gains made on disposal of qualifying shares in unlisted trading companies.
Shares must be fully paid ordinary shares issued to investor in return for cash after March 2016 and investor has
held for 3 years from April 2016.
Special tax rate of 10% on the gain.
Lifetime cap £10 million – separate to business asset disposal relief).
o Deferral relief on reinvestment in EIS shares
TCGA s150C and Sch5B
Unlimited deferral of gains arising out of disposal of any asset is available where individual subscribes wholly for
cash for shares in a company which qualifies under Enterprise Investment Scheme (Legal Foundations TB).
o Other share-based relief
To encourage share ownership the Gov introduces incentives by favourable CGT treatment for certain
shareholdings. Seed Enterprise Investment Scheme, Enterprise Management Incentives and other employee
share schemes.
ANNUAL EXEMPTION – TCGA S3.
First 12,300 exempts of individual’s gains. If it is unused then it cannot be carried over and it is lost.
, It can be allocated in the most favourable way to the taxpayer.
Cannot be used on gain which is being rolled-over or held over.
TAX RATES AND PAYMENT
o Business asset disposal relief = 10% for anyone
o Standard rate = where their tax is not above basic rate threshold of £37,500 for income tax, the tax rate is 10% on
gains that do not qualify for BADR.
o Higher rate = once their taxable income and gain is above 37,500 any gains that do not qualify for BADR is taxed
at 20%.
There is a surcharge of 8% on gains made on disposal of certain assets – residential property.
Payable on or before 31st January following end of tax year.
Instalment option available in limited circumstances:
- TCGA s281
- 10 annual instalments starting with usual date /\
- Interest charged on the outstanding tax.
- Conditions are: disposal must have been gift, hold-over relief not available and property is either land, controlling
SH in any company or any SH in unquoted company.
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