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ACCA Applied Skills · Taxation (UK) · The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Brindle Ltd sold a factory used in its trade for £400,000. It had cost £220,000, and indexation allowance is £66,000. Brindle Ltd bought a new qualifying trading building for £370,000 within the qualifying reinvestment period and claims rollover relief. What gain is chargeable immediately?

£30,000 is chargeable immediately. The total gain is £114,000, but rollover relief defers the gain to the extent proceeds are reinvested. £30,000 of proceeds was not reinvested, and this is less than the gain, so it is taxed now and £84,000 is deferred.

  1. A£30,000Correct
  2. B£114,000
  3. C£84,000
  4. DNil

Explanation

Gain = £400,000 − £220,000 − £66,000 = £114,000. Proceeds not reinvested are £400,000 − £370,000 = £30,000, which is less than the gain, so £30,000 is chargeable now. The remaining £84,000 is deducted from the new building's base cost. £84,000 is the deferred amount, not the chargeable one.

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