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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: chargeable gains for companies

Kappa Ltd sold a qualifying freehold factory at a gain of £150,000 and bought a qualifying replacement factory for more than the proceeds, claiming full rollover relief. Which statement about this relief for a company is correct?

Rollover relief defers the gain rather than exempting it. The gain is deducted from the replacement asset's base cost, so it is taxed later when that asset is sold, unless further relief applies. Companies pay corporation tax on gains, not capital gains tax.

  1. AThe relief is claimed by deducting the gain from the base cost of the replacement asset, so the gain is deferred and not exemptedCorrect
  2. BThe gain is exempt permanently and no tax is ever payable on it
  3. CThe gain is taxed at the 18% capital gains tax rate for individuals
  4. DThe relief can only apply if the replacement asset is of the same type as the old asset

Explanation

Rollover relief defers the gain by reducing the base cost of the replacement asset, so a larger gain arises on its later sale. Companies pay corporation tax on chargeable gains, not CGT rates. The replacement need only fall within qualifying classes, not be identical.

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