Advanced Taxation (UK) · Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects

Chargeable Gains for Companies and Rollover Relief

Updated 11 October 2026 · Fact-checked

A company's chargeable gain is proceeds less cost, less indexation allowance frozen at December 2017. The gain is taxed within corporation tax, not CGT. Gains on qualifying share holdings can be exempt under the substantial shareholding exemption. Gains on business assets can be deferred by rollover relief if proceeds are reinvested in time.

Understand Chargeable Gains for Companies and Reinvestment Relief

A company does not pay capital gains tax. Its chargeable gains are added to its other profits and taxed as corporation tax. So there are no CGT rates, no annual exempt amount and no business asset disposal relief. The gain is taxed at the small profits rate of 19%, the main rate of 25%, or with marginal relief in between. The limits are £50,000 and £250,000, with a standard fraction of 3/200.

The gain is calculated in a similar way to an individual's: disposal proceeds less incidental costs, less cost. The main difference is indexation allowance. It gives relief for inflation between acquisition and disposal. It has been frozen since December 2017. You index the cost only up to December 2017, even if the sale is much later. For assets bought after that date, there is no indexation. Indexation can reduce a gain to nil but cannot create or increase a loss.

The substantial shareholding exemption (SSE) can remove the gain altogether. It applies when a company sells shares in a trading company or the holding company of a trading group. The seller must have held at least 10% of the ordinary share capital for a continuous 12 months within the six years before the sale. The investee must be a trading company, or the holding company of a trading group or subgroup, throughout the 12-month holding period. It must also meet that trading test immediately after the sale. The investing company's own trading status does not matter. The exemption is automatic, not a claim. The cost of exempt gains is that losses on such disposals are not allowable.

Rollover relief defers a gain on a qualifying business asset when the proceeds are reinvested in another qualifying asset. Qualifying classes include land and buildings used in the trade and fixed plant and machinery. The new asset must be bought in the period from 12 months before to 36 months after the disposal and used in the trade. The gain is not removed. It is deducted from the cost of the new asset, so it is taxed later when that asset is sold. If the new asset is a depreciating asset, the gain is held over and becomes chargeable on the earliest of its sale, ceasing to be used in the trade, or 10 years after acquisition.

Capital losses of a company are set first against gains of the same period. Any unused loss is carried forward against future gains only. Companies have no annual exempt amount to use up, and losses cannot be carried back against earlier gains.

Key rules to remember

Unindexed gain: Disposal proceeds − incidental selling costs − allowable cost (including incidental acquisition costs and enhancement expenditure); Use net proceeds. Deduct enhancement expenditure that is reflected in the asset when sold.
Indexation factor: (RPI for December 2017 − RPI for month of acquisition) ÷ RPI for month of acquisition; Round to three decimal places. The exam normally gives the factor or the RPI figures. For assets held at March 1982, the start point is March 1982.
Indexation allowance: Cost × indexation factor, limited to the unindexed gain; Frozen at December 2017. It cannot create or increase a loss. Expenditure after December 2017 gets no indexation.
Chargeable gain: Unindexed gain − indexation allowance; Added to the company's profits and taxed at corporation tax rates, not CGT rates.
Corporation tax rates: Small profits rate 19%; main rate 25%; lower limit £50,000; upper limit £250,000; Marginal relief = (Upper limit − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits. Limits are reduced for associated companies and short accounting periods.
SSE conditions: Holding ≥ 10% of ordinary share capital, held for 12 months continuously in the 6 years before disposal, investee a trading company or trading group member; If SSE applies the gain is exempt and losses are not allowable. Test the investee's status throughout the period and immediately after the sale.
Rollover relief: partial reinvestment: Gain immediately chargeable = lower of (gain) and (proceeds not reinvested); Deferred gain = Gain − gain immediately chargeable; Replacement window: 12 months before to 36 months after disposal. Base cost of new asset = cost of new asset − deferred gain.
Depreciating asset deferral: Held-over gain becomes chargeable on the earliest of: sale of the new asset, it ceasing to be used in the trade, or 10 years after acquisition; Applies to assets such as fixed plant and machinery with a life of 60 years or less. The gain is not deducted from the new asset's cost.

How to solve Chargeable Gains for Companies and Reinvestment Relief questions

Use this order for any question on a company's gains. It stops you applying CGT rules by mistake and makes sure you test reliefs before doing the arithmetic.

1Identify the asset and the date of disposal and acquisition. Decide whether it is shares or a business asset, and whether it is a company or an individual selling. Companies use corporation tax rules.
2If shares are sold, test the substantial shareholding exemption first. Check the 10% holding, the 12-month period within six years, and the trading status of the investee. If it applies, the gain is exempt and any loss is not allowable.
3Compute the unindexed gain: net proceeds less cost and any enhancement expenditure.
4Work out the indexation allowance using cost × factor to December 2017. Limit it to the unindexed gain. Give none for expenditure after December 2017. For share pools, use the pool balances and the indexed pool.
5Check whether rollover relief is available. The old and new assets must be in qualifying classes and used in the trade, and the replacement must be in the 12 months before to 36 months after window. Decide whether all proceeds are reinvested.
6If rollover applies, calculate the gain deferred and the amount that remains chargeable. Reduce the base cost of the new asset. For depreciating assets, hold the gain over instead and state when it crystallises.
7Deal with capital losses: set them against gains of the same period, then carry forward unused losses. Then add the net chargeable gain to taxable total profits and apply corporation tax rates, marginal relief if relevant.
8Finish with a short explanation or recommendation in the scenario. State the assumption you have made and give the tax effect for the client.

Quickest way: Gain, relief, tax: three-line check

When to use it: Use this when you have a short Section B requirement or are short of time in a Section A scenario with several disposals.

Look at the seller. If it is a company, rule out CGT rates, the annual exempt amount and BADR immediately.
For each disposal, write one line: SSE yes or no, with the reason in a few words such as 'over 10%, held over 12 months, trading'.
Compute: proceeds − cost = gain; cost × factor = IA; gain − IA = chargeable gain. Stop IA at the unindexed gain.
If reinvestment is mentioned, compare the proceeds not reinvested with the gain and take the lower figure as chargeable now.
Give the tax at 25% or 19% only if the question asks for it. Otherwise state that the gain forms part of taxable total profits.

Common mistakes in Chargeable Gains for Companies and Reinvestment Relief

Applying the CGT rates of 18% and 24% or the £3,000 annual exempt amount to a company.
Students recall the individual rules from earlier papers and apply them automatically.
Fix: Write 'company = corporation tax' at the top of the answer. The gain is added to taxable total profits and taxed at 19%, 25% or with marginal relief.
Indexing the cost up to the date of sale instead of December 2017.
Students assume indexation continues because they remember the older rules.
Fix: Always cut off indexation at December 2017. Use the factor given by the examiner. If none is given, use RPI for December 2017.
Using indexation allowance to create or increase a loss.
Students deduct the full allowance without comparing it to the unindexed gain.
Fix: Work out the unindexed gain first. IA is limited to that amount. If there is an unindexed loss, no IA is given.
Claiming a capital loss on shares where the SSE applies, or applying SSE when the holding is below 10%.
Students check only the 10% holding and skip the time period and trading status, or they go for the loss without checking the exemption first.
Fix: Run through all SSE conditions in order. If they are met, the gain is exempt and the loss is not allowable. If the 10% test fails, compute the gain or loss normally.
Deferring the whole gain under rollover relief when only part of the proceeds is reinvested.
Students focus on the reinvestment and forget the proceeds-not-reinvested rule.
Fix: Compare the gain with the unspent proceeds. The lower figure is chargeable now. The rest is deducted from the cost of the new asset.
Treating rollover relief on a depreciating asset like normal rollover relief.
Both reliefs are called rollover and the exam gives similar facts.
Fix: Check the class of the new asset. For a depreciating asset, the gain is held over and becomes chargeable on the earliest of sale, ceasing to be used in the trade, or 10 years after acquisition.

Worked examples

Example 1

Delta Ltd sold a factory in August 2026 for £600,000, with selling costs of £10,000. It bought the factory in 2008 for £250,000. The indexation factor from acquisition to December 2017 is 0.400. In January 2027 Delta Ltd buys a new factory for £540,000. Both are used in its trade. Compute the gain chargeable now and the base cost of the new factory, assuming rollover relief is claimed. Use net proceeds (after selling costs) when comparing the proceeds with the amount reinvested.

Show the solution

Net proceeds = £600,000 − £10,000 = £590,000.
Unindexed gain = £590,000 − £250,000 = £340,000.
Indexation allowance = £250,000 × 0.400 = £100,000. This is less than the unindexed gain, so it is fully given.
Chargeable gain before relief = £340,000 − £100,000 = £240,000.
Check the relief: the new factory was bought within 36 months after the disposal and is used in the trade. It is land and buildings, so it qualifies.
Proceeds not reinvested: the rule compares the net proceeds, after selling costs, with the amount reinvested. This is the approach used in ATX. So £590,000 − £540,000 = £50,000.
Gain chargeable now = lower of £240,000 and £50,000 = £50,000.
Gain deferred = £240,000 − £50,000 = £190,000.
Base cost of the new factory = £540,000 − £190,000 = £350,000.

Answer: £50,000 is chargeable now as part of Delta Ltd's taxable total profits. £190,000 is deferred, and the base cost of the new factory is £350,000.

Exam tips

Start every gains question by stating that the taxpayer is a company and the gain is taxed within corporation tax. This earns easy marks and prevents CGT errors.
Always test SSE first when shares are sold. The mark scheme usually gives separate marks for each condition, so name each one and say whether it is met.
In rollover questions, show the proceeds-not-reinvested figure, the gain chargeable now and the revised base cost as three separate lines. Marks are given for each.
Use the tax tables provided: 19% small profits rate, 25% main rate, £50,000 and £250,000 limits, and the 3/200 fraction. Do not use rates from memory and do not invent figures.
For professional skills marks, add a brief comment on the commercial effect for the client, such as the cash flow benefit of deferral or the effect on the timing of the later tax. Keep it relevant to the scenario.

Practice questions from Corporation tax: the comprehensive calculation of the corporation tax liability, including overseas aspects

Chargeable Gains for Companies and Reinvestment Relief in other exams

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

ACCA Applied SkillsChargeable Gains for Companies

Chargeable Gains for Companies and Reinvestment Relief: frequently asked questions

What is the difference between corporation tax and CGT on gains?

A company pays corporation tax on its chargeable gains, at the same rates as its other profits. Individuals pay CGT at 18% or 24% after the £3,000 annual exempt amount. Companies get no annual exempt amount and no business asset disposal relief.

Is indexation allowance still available for companies?

Yes, but it is frozen at December 2017. You calculate it from the date of acquisition to December 2017 only. Expenditure after that date gets no indexation, and indexation cannot create or increase a loss.

When does the substantial shareholding exemption apply?

It applies when a company sells shares in a trading company or the holding company of a trading group. The seller must have held at least 10% of the ordinary share capital for 12 months continuously in the six years before the sale. The gain is exempt automatically and any loss is not allowable.

What assets qualify for rollover relief for a company?

Land and buildings used in the trade and fixed plant and machinery are the main qualifying classes. The replacement must be bought in the period from 12 months before to 36 months after the disposal and used in the trade. If the new asset is depreciating, the gain is held over until a later chargeable event.