TQOTW: Rollover Relief Use of Proceeds
My clients are a farming company. They recently disposed of a large piece of fixed machinery used in the business for £60,000, and made a capital gain of £10,000. The actual sale proceeds were used to fund salaries and pension contributions in the month of disposal but six months later, after the company obtained further funding, they spent £100,000 on a qualifying replacement asset, a more modern equivalent of the old one.  Is it still possible to rollover the gain in these circumstances, given that the sale proceeds of the old asset were not directly used to obtain the new one?

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A. Yes, it is not necessary to establish a direct link between the disposal proceeds and their application, provided that replacement asset or assets are acquired within the normal time limits of 12 months before, or 36 months following the disposal (see HMRC capital gains manual, paragraph CG60760, although note the exception to this rule where an extension to the limit for reinvestment is requested by the taxpayer under Section 152 (3) TCGA 1992). Provided the new asset is purchased within the statutory time limit the disposal consideration may be regarded as having been applied in acquiring the new qualifying asset. In practical terms it would be unfair to expect a direct link between the disposal proceeds and the new acquisition to be shown and in fact, where the acquisition of the new asset precedes the disposal of the old one, it would not be possible to meet this condition if the legislation were interpreted too narrowly.

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Tax Advice Consultant
0844 892 2470

Roger spent 14 years with the Inland Revenue followed by several years working in the tax department of an accountancy practice. Roger is a member of the Association of Taxation Technicians and, as well as advising on all areas of direct tax, he specialises in Stamp Duty Land Tax.

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