Taxation (UK) · The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Rollover Relief on Replacement of Business Assets

Updated 11 October 2026 · Fact-checked

Rollover relief defers a chargeable gain when you sell a qualifying business asset and reinvest the proceeds in another qualifying asset within the time limit. The gain is deducted from the new asset's base cost. If you keep part of the proceeds, that amount is taxed now, up to the gain.

Understand Rollover Relief on Replacement of Business Assets

Rollover relief stops tax being a barrier to renewing a business. If you sell a factory at a gain and buy a new one, you have not cashed out. The relief lets you defer the tax until you finally leave the business.

It is a deferral, not an exemption. The gain is not wiped out. It is deducted from the cost of the new asset, so the new asset has a lower base cost. When you later sell the new asset without reinvesting, the deferred gain comes back into the charge.

Both the old and the new asset must be qualifying business assets used in the trade. The main classes are land and buildings, fixed (immovable) plant and machinery, and goodwill for sole traders and partners. A company's goodwill is dealt with under the intangible fixed assets regime, so rollover relief does not apply to it. Ships, aircraft and some other classes also qualify. The old and new asset need not be in the same class. A sale of a building can be rolled into new fixed plant.

The new asset must be bought in a window running from one year before to three years after the disposal. You must claim the relief. For individuals, the claim must be made within four years of the end of the tax year in which the later of the disposal and the acquisition occurs. For companies, the claim must be made within four years of the end of the accounting period in which the later of the two occurs. The asset must be used in the trade of the person claiming, and for individuals the trade is their own or their personal company's.

If you reinvest only part of the proceeds, you get relief only on the part reinvested. The unreinvested proceeds are taxed now, but never more than the whole gain. For a depreciating asset (a wasting asset with a life of 60 years or less, such as fixed plant or a short lease), the gain is not deducted from cost. It is held over and becomes chargeable on the earliest of three dates. These are the disposal of the depreciating asset, its ceasing to be used in the trade, and ten years after acquiring it.

Key rules to remember

Full reinvestment: Gain deferred = whole gain; base cost of new asset = cost − gain deferred; Applies when all the proceeds are spent on the new qualifying asset.
Partial reinvestment: gain taxed now: Gain taxable now = lower of (gain) and (proceeds not reinvested); Proceeds not reinvested = old asset proceeds − cost of new asset.
Partial reinvestment: gain deferred: Gain deferred = gain − gain taxable now; Deduct this from the base cost of the new asset.
Time limit for reinvestment: From 1 year before to 3 years after the disposal; HMRC can accept a later date at its discretion, but assume the standard window in the exam.
Depreciating asset: Deferred gain crystallises on the earliest of: disposal of the asset, ceasing to use it in the trade, 10 years after acquisition; The gain is not deducted from the new asset's cost. Applies to assets with a life of 60 years or less.
Individual claim deadline: 4 years from the end of the tax year in which the later of the disposal and the acquisition occurs; Check the dates given in the question before saying a claim is valid.
Company claim deadline: 4 years from the end of the accounting period in which the later of the disposal and the acquisition occurs; Companies use accounting periods, not tax years.

How to solve Rollover Relief on Replacement of Business Assets questions

Work through the same order each time. It keeps the arithmetic clean and shows the marker each mark-earning point.

1Compute the full chargeable gain on the old asset: proceeds less cost (and enhancement costs). For a company, indexation allowance stopped accruing in December 2017, so an asset bought after that date gets none. Any chargeable gain is included in taxable total profits.
2Check the old asset qualifies: it must be a qualifying class and used in the trade throughout the ownership, or you must restrict the gain for non-trade use.
3Check the new asset qualifies and is bought inside the window: one year before to three years after the disposal. Check the claim is made in time.
4Compare the proceeds with the amount reinvested. If all is reinvested, the whole gain is deferred.
5If only part is reinvested, the gain taxable now is the lower of the gain and the proceeds not reinvested. The balance of the gain is deferred.
6Calculate the base cost of the new asset: cost less the deferred gain. If the new asset is depreciating, do not reduce its cost. Hold the gain over instead and state when it crystallises.
7Apply the annual exempt amount (individuals) and the CGT rate to the gain taxable now. Companies include it in taxable total profits.

Quickest way: Proceeds-not-reinvested shortcut

When to use it: Use for any partial reinvestment question in the objective test or the written section.

Write the gain on one line.
Subtract the cost of the new asset from the old proceeds. This is the amount not reinvested.
If that figure is zero or negative, the whole gain is deferred.
Otherwise the taxable gain is the lower of that figure and the gain.
Deferred gain = gain − taxable gain. New base cost = new cost − deferred gain.

Common mistakes in Rollover Relief on Replacement of Business Assets

Comparing the gain with the cost of the new asset instead of comparing the proceeds.
Students think the gain must be reinvested, not the whole proceeds.
Fix: Relief depends on how much of the proceeds you reinvest. Always compute proceeds less new cost first.
Taxing more than the whole gain when the proceeds not reinvested exceed the gain.
The unreinvested amount is used without checking it against the gain.
Fix: Take the lower of the gain and the proceeds not reinvested.
Treating deferred gain on a depreciating asset like normal rollover.
Students deduct the gain from the new cost out of habit.
Fix: For a depreciating asset the gain is held over. It crystallises on the earliest of disposal, ceasing to use it in the trade, or ten years after acquisition.
Missing the time window or applying it the wrong way round.
Students remember only the three years after.
Fix: The window runs one year before to three years after the disposal. Count from the disposal date.
Applying relief to non-qualifying assets such as shares or the goodwill of a company.
Students assume any business asset qualifies.
Fix: Check the class. Shares do not qualify. Goodwill qualifies for sole traders and partners, but a company's goodwill is dealt with under the intangible fixed assets regime, so rollover relief does not apply.
Confusing rollover relief with gift holdover relief.
Both defer a gain by reducing a base cost.
Fix: Rollover relief applies on a sale where proceeds are reinvested in a business asset. Gift holdover applies to gifts, and the donee takes over the reduced cost.

Worked examples

Example 1

Mia, a sole trader, sold a factory in July 2025 for £400,000. She bought it for £150,000. In March 2026 she bought a new factory for £450,000. Both are used in her trade. Compute the gain taxable in 2025–26 and the base cost of the new factory.

Show the solution

Gain on the old factory: £400,000 − £150,000 = £250,000.
Proceeds not reinvested: £400,000 − £450,000 = negative, so all proceeds are reinvested.
The whole gain of £250,000 is deferred.
Gain taxable now: nil.
Base cost of the new factory: £450,000 − £250,000 = £200,000.

Answer: No gain is taxable in 2025–26. The new factory has a base cost of £200,000.

Example 2

Fenton Ltd sold a warehouse for £500,000 in October 2025. It cost £200,000 in 2019, so the gain is £300,000 (no indexation allowance arises because the warehouse was bought after December 2017). In June 2026 it bought a replacement warehouse for £420,000. Both are used in its trade. Compute the gain taxable now and the base cost of the new warehouse.

Show the solution

Gain on the old warehouse: £500,000 − £200,000 = £300,000.
Proceeds not reinvested: £500,000 − £420,000 = £80,000.
Gain taxable now: lower of £300,000 and £80,000 = £80,000.
Gain deferred: £300,000 − £80,000 = £220,000.
Base cost of the new warehouse: £420,000 − £220,000 = £200,000.
The new warehouse was bought within the window (within three years after the disposal), so the claim is valid.

Answer: £80,000 is chargeable now and is included in Fenton Ltd's taxable total profits. £220,000 is deferred. The new warehouse has a base cost of £200,000.

Exam tips

Always check the dates first. A purchase more than one year before or three years after the disposal fails the time test, so say so and give no relief.
Write the reinvestment test as a mini-calculation in the written section. Markers award marks for proceeds not reinvested and for the lower-of comparison.
In objective tests, watch for a question asking for the base cost of the new asset. Subtract the deferred gain, not the taxable gain.
For depreciating assets, name the three crystallisation events. A question often asks when the gain becomes chargeable.
Note that the claim is a relief you must make. State that a claim is needed and give the deadline when the question asks about the procedure.

Practice questions from The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

Rollover Relief on Replacement of Business Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalRollover Relief for Companies

Rollover Relief on Replacement of Business Assets: frequently asked questions

What is rollover relief?

It is a relief that defers a chargeable gain on the sale of a qualifying business asset when you reinvest the proceeds in another qualifying asset. The gain is deducted from the new asset's cost, so tax is postponed rather than removed.

What is the time limit for buying the replacement asset?

The new asset must be bought within the period from one year before to three years after the disposal of the old asset. You also need to make a claim within the deadline.

What happens if I only reinvest part of the proceeds?

You get relief on the part reinvested. The gain taxable now is the lower of the whole gain and the proceeds not reinvested. The rest of the gain is deferred against the new asset's cost.

What is the difference between rollover relief and holdover relief?

Rollover relief applies when you sell a business asset and reinvest the proceeds in another qualifying asset. Holdover relief applies to gifts of certain assets, where the gain is deducted from the recipient's base cost. The trigger is different: a sale with reinvestment versus a gift.