CG64136 - Business Asset Disposal Relief: calculation of the relief: rolled over gains

Entrepreneurs’ Relief was renamed in Finance Act 2020 with effect from 6 April 2020. The new name is generally used in this guidance but should be read as applying to times before that date.

Where a gain arises which may qualify for Business Asset Disposal Relief it is possible that a claim may be made under a provision which rolls that gain, or a proportion of it, over against the acquisition cost of a replacement asset (for example Business Asset Roll-Over Relief under TCGA92/S152 - see CG60211+).

If the whole of the gain accruing upon the disposal of the old asset is rolled-over against the acquisition cost of the new asset then no chargeable gain will arise at that time. In consequence there will be no ‘relevant gain’ for the purposes of TCGA92/S169N (1) - see CG64125 - and a claim to Business Asset Disposal Relief would not be appropriate.

If however only part of the gain accruing upon the disposal of the old asset is rolled-over against the acquisition cost of the replacement asset then a chargeable gain will remain at that time and a claim to Business Asset Disposal Relief may be made in respect of the amount of gain that remains chargeable.

On any subsequent disposal of the replacement (new) asset any gain is calculated in the normal way. This gain may be subject to Business Asset Disposal Relief if a claim is made and the relevant conditions are met in respect of this subsequent disposal.

Example

In 2002 G buys for £50,000 a freehold shop which she uses to carry on her ladies fashion business until March 2009 when both business and shop are sold for £98,000. The chargeable gain on the disposal (before any roll-over relief) is £98,000 - £50,000 = £48,000. Also in March 2009 G acquires a larger shop at a cost of £120,000 and opens a new business of retailing baby clothes and accessories and claims roll-over relief. In October 2012, G sells this second business and shop for £230,000. G then acquires for £200,000 a third business and shop retailing wedding dresses.

Sale of first shop

The sale of the first shop and ladies fashion business in March 2009 should be dealt with as if the disposal consideration were reduced by £48,000 to £50,000. The acquisition cost of the new business and shop of retailing baby clothes and accessories is consequentially reduced to £72,000. There will be no ‘relevant gain’ at this time for the purposes of Business Asset Disposal Relief and a claim is not be appropriate.

Sale of second shop

On the sale of the second business and shop of retailing baby clothes and accessories for £230,000 in October 2012 a capital gain will accrue and is computed in the normal way but using the reduced acquisition cost of £72,000. This gain will be £230,000 - £72,000 = £158,000.

Acquisition of 3rd shop

In October 2012 G buys a new business of retailing wedding dresses and the third shop for £200,000 and so again claims roll-over relief. But as not all the proceeds from the second shop are used in acquiring the third shop only £128,000 (£158,000 less gain not applied to acquisition) of the gain is rolled over into the cost of the new shop. The remaining gain of £30,000 is chargeable in 2012/13 and may be eligible for Business Asset Disposal Relief.