ExpertHard2 marksMultiple Choice
ACCA · Question 26 · Chargeable gains for individuals
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: Assuming a claim for Rollover Relief is made, what is the base cost of the new factory for Capital Gains Tax purposes?
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: Assuming a claim for Rollover Relief is made, what is the base cost of the new factory for Capital Gains Tax purposes?
Answer options:
A.
£700,000
B.
£650,000
C.
£550,000
D.
£800,000
How to approach this question
Calculate the amount of proceeds NOT reinvested (£800k - £700k = £100k). This amount of the gain is immediately chargeable. The rest of the gain (£150k - £100k = £50k) is rolled over. Deduct the rolled-over gain from the cost of the new asset to find its base cost.
Full Answer
B.£650,000✓ Correct
To calculate Rollover Relief, first determine if all proceeds were reinvested. Old factory proceeds = £800,000. New factory cost = £700,000. Amount not reinvested = £100,000. This £100,000 remains immediately chargeable to CGT. The total gain was £150,000, so the amount that can be rolled over is £150,000 - £100,000 = £50,000. The base cost of the new factory is its purchase price less the rolled-over gain: £700,000 - £50,000 = £650,000.
Common mistakes
Rolling over the entire £150,000 gain and calculating a base cost of £550,000, ignoring the rule on non-reinvested proceeds.
Practice the full ACCA TX — Taxation Practice Exam 5
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