Section A

Delta Ltd sold a freehold factory, realizing a chargeable gain of £150,000. The company reinvested the entire proceeds into fixed plant and machinery (a depreciating asset) within the qualifying time period. How is the rollover relief applied in this scenario?

Answer options:

The gain is permanently rolled over into the base cost of the plant and machinery.

The gain is deferred until the earliest of: disposal of the plant, the plant ceasing to be used in the trade, or 10 years from the acquisition of the plant.

Rollover relief is not available because plant and machinery is not a qualifying asset.

The gain is deferred for a fixed period of 5 years.

How to approach this question

Identify the replacement asset as a depreciating asset. Apply the specific deferral rules for depreciating assets rather than standard base cost reduction.

Full Answer

B.The gain is deferred until the earliest of: disposal of the plant, the plant ceasing to be used in the trade, or 10 years from the acquisition of the plant.✓ Correct

When proceeds from the sale of a qualifying business asset are reinvested into a depreciating asset (like fixed plant and machinery), standard rollover relief (reducing the base cost) does not apply. Instead, the gain is deferred (held over) and crystallizes on the earliest of three events: 1) the disposal of the depreciating asset, 2) the asset ceasing to be used in the trade, or 3) 10 years from the date the depreciating asset was acquired.

Common mistakes

Assuming standard rollover relief applies, which would reduce the base cost of the plant and machinery.

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