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

Tau Ltd sold a freehold office, used in its trade, for £700,000 and made a chargeable gain of £180,000. Tau Ltd bought a replacement freehold building for £640,000 within the qualifying period, and used it in its trade. All of the sale proceeds not reinvested are retained. What is the chargeable gain immediately taxable in the year of sale, and the base cost of the new building after rollover relief?

The gain taxable now is £60,000, being the proceeds not reinvested. The remaining £120,000 of gain is rolled over and deducted from the new building's cost of £640,000, giving a base cost of £520,000.

  1. AGain taxable £60,000; base cost £520,000Correct
  2. BGain taxable £60,000; base cost £580,000
  3. CGain taxable £120,000; base cost £460,000
  4. DGain taxable £0; base cost £460,000

Explanation

Proceeds not reinvested are £700,000 - £640,000 = £60,000, which is taxable now. The gain rolled over is £180,000 - £60,000 = £120,000. The base cost is £640,000 - £120,000 = £520,000. Option £580,000 deducts only the taxable gain, a wrong adjustment.

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