What is the key difference between rollover and holdover relief?

Rollover relief enables businesses to postpone paying tax on assets like buildings used in the trade as long as the sale proceeds are reinvested in replacement assets.

The sale proceeds must be reinvested in a replacement business asset 1 year before to 3 years after the disposal of the original asset.

If part of the sale proceeds are retained, a gain equal to that amount crystallises immediately. The balance of the gain can be deferred.

If the replacement asset is a freehold building or goodwill, then rollover relief can be claimed.

The gain deferred is postponed by deducting it from the cost of the replacement asset.

The reduced cost of the replacement is called base cost which means that the gain is deferred permanently until the replacement freehold building or goodwill is sold.

Alternatively, the sale proceeds can be reinvested in a qualifying depreciating asset with a life of 60 years or less (fixed plant and machinery or a leasehold building). Here, holdover relief can be claimed instead.

The gain is suspended separately until the earliest of 3 events

·      Sale of replacement

·      Replacement obsolete

·      10 years after the replacement is bought.

The cost of the depreciating asset is unchanged. When the depreciating asset is sold, the capital loss cannot be claimed if capital allowances were available earlier.

Holdover only offers temporary relief and allows the gain to be postponed for a maximum of 10 years.

If you are planning on doing Advanced Tax in December 2022 or March 2023, I recommend you purchase Advanced Tax Condensed and make a head start. You need to deal with at least 30 separate technical areas to pass the exam and this book will really make the difference. You can purchase it using the link below:

#rollover #holdover #neildacosta #kaplan #accaglobal