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Practice assessment 2 - Question 10 (rollover relief)

IzzyOzzyIzzyOzzy Registered Posts: 7
Please can someone help with this question as I'm not sure how to get to the answer AAT provided:

In 2017, James made the following purchases of trading properties:
12 July 2017, a retail unit for £250,000
1 August 2017, a factory for £325,000

On 31 July 2018, James sold a warehouse unit for £350,000, realising a gain of £75,000.

James's rollover relief claim for the 2018/19 tax year is: £50,000.

How do you get to £50,000?

This is hurting my head :(

Comments

  • NorvydasNorvydas DevonMAAT Posts: 265
    @IzzyOzzy

    "You may be able to delay paying Capital Gains Tax if you:

    sell (or ‘dispose of’) some business assets
    use all or part of the proceeds to buy new assets"

    https://www.gov.uk/business-asset-rollover-relief

    You're ignoring the retail unit because it's not like-to-like to warehouse, where Factory and warehouse are like-to-like.

    You sold an asset for £325,000, you bought a new asset for £350,000, this means you lost (spent) £25,000 more.

    £325,000 - £350,000 = £-25,000

    Gain of Sale: £75,000
    Minus the loss: -£25,000
    Total rollover relief: £50,000 (£75,000 - £25,000)
    Kind Regards,

    Norvydas Valavicius.
    IzzyOzzy
  • IzzyOzzyIzzyOzzy Registered Posts: 7
    @Norvydas that makes much more sense now, thanks!
  • RyanMIPRyanMIP LincolnshireRegistered Posts: 50
    Regrettably, the reasoning given by ‘Norvydas’ is totally incorrect.
    MarieNoelle
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    RyanMIP said:

    Regrettably, the reasoning given by ‘Norvydas’ is totally incorrect.

    Agree but it would be helpful to give your reasoning.
    The retail unit qualifies as a business asset but was purchased over a year before the warehouse disposal therefore out of time for the relief.
  • RyanMIPRyanMIP LincolnshireRegistered Posts: 50
    ...it would be equally helpful for you to give the full reasoning.

    The proceeds (£350k) were not entirely reinvested within the qualifying period (only £325k was). The proceeds which were not reinvested (£25k) remain in charge.
    MarieNoelle
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,432
    Thanks for providing the complete explanation and helping a fellow human being today. :)
  • IzzyOzzyIzzyOzzy Registered Posts: 7
    Thank you @RyanMIP and @MarieNoelle, so would the £25k not reinvested offset the gain of £75k? Is that how you get to the £50k for rollover relief?
  • SophieChallSophieChall Registered Posts: 5
    Yes that’s correct. So £25,000 wasn’t re invested so forms an immediate chargeable gain but then you deduct that from the total gain of £75k and left with £50k that can be rolled over.
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