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

Pellam Ltd, which is not in a group, sold a qualifying business asset for £900,000, giving a chargeable gain of £300,000. It reinvested £800,000 of the proceeds in a new qualifying asset within the permitted period and claimed rollover relief. What is the gain immediately chargeable and the base cost of the new asset for future gains?

Because £100,000 of proceeds was not reinvested, that amount is chargeable now. The remaining gain of £200,000 is deferred and deducted from the £800,000 cost of the new asset, giving a base cost of £600,000.

  1. AChargeable gain £100,000 and base cost of new asset £600,000Correct
  2. BChargeable gain £100,000 and base cost of new asset £700,000
  3. CChargeable gain £300,000 and base cost of new asset £800,000
  4. DChargeable gain £0 and base cost of new asset £500,000

Explanation

Proceeds not reinvested are £900,000 - £800,000 = £100,000, which is less than the gain, so £100,000 is chargeable now. The gain deferred is £300,000 - £100,000 = £200,000. Base cost of the new asset is £800,000 - £200,000 = £600,000. Option 2 deducts only the immediate gain, and option 3 ignores the relief.

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