Practice assessment 2 - Question 10 (rollover relief)

IzzyOzzy

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

Norvydas

@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)

IzzyOzzy

@Norvydas that makes much more sense now, thanks!

Norvydas

Another good link; https://www.gov.uk/government/publications/business-asset-roll-over-relief-hs290-self-assessment-helpsheet/hs290-business-asset-roll-over-relief-2017

RyanMIP

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

MarieNoelle

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.

RyanMIP

...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

Thanks for providing the complete explanation and helping a fellow human being today.

IzzyOzzy

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?

SophieChall

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.