Rollover Relief on Business Assets: Deferring CGT on Reinvestment

When a business sells a qualifying asset and uses the proceeds to acquire new qualifying assets, it may be possible to defer the capital gain arising on the disposal using rollover relief under sections 152–158 TCGA 1992. The relief reduces the base cost of the new asset by the deferred gain, so that when the new asset is eventually sold, the deferred gain crystallises alongside any new gain. This makes rollover relief a deferral mechanism rather than an exemption — but deferral can be enormously valuable, particularly where future disposals will be structured differently (e.g., through a company), may attract a lower CGT rate (e.g., under BADR), or simply where cash flow is constrained.

Who Can Claim Rollover Relief?

Rollover relief is available to:

• Individuals carrying on a trade (including sole traders, partners in a partnership, and qualifying company shareholders).
• Companies carrying on a trade.

The asset must have been used for the purposes of the claimant's trade throughout the period of ownership. Assets held for investment (e.g., commercial property let to third parties) generally do not qualify — the trade use requirement is strict. However, assets used partly for trade purposes may qualify for partial relief.

Qualifying Assets

The legislation specifies which assets qualify for rollover relief. The main categories are:

• Land and buildings occupied for the purposes of the trade — the most common application. A business owner who sells premises and buys replacement premises can roll over the gain.
• Fixed plant and machinery — equipment that is fixed to a building or site and not readily moveable (e.g., industrial machinery bolted to a factory floor). Mobile plant and machinery is excluded.
• Ships, aircraft, and hovercraft (used in a qualifying trade).
• Satellites, spacecraft, and space stations.
• Goodwill acquired before April 2002 — goodwill acquired on or after 1 April 2002 by a company is generally subject to the intangible assets regime rather than TCGA, and is therefore outside this rollover relief.
• Lloyd's syndicate capacity.
• Milk, potato, and fish quotas (relevant for agricultural businesses).

Common exclusions: wasting assets (assets with a predictable useful life of 50 years or less — see Depreciating Assets below), stocks and shares, and intangible assets other than the narrow categories specified above.

Residential property does not qualify. A landlord selling a buy-to-let property and buying a commercial property cannot roll over the gain on the buy-to-let.

The Reinvestment Window

The new asset must be acquired:

• No earlier than one year before the disposal of the old asset, and
• No later than three years after the disposal.

This three-year window gives businesses reasonable time to identify and acquire replacement assets. HMRC has discretion to extend the window in exceptional circumstances (for example, where planning delays hold up a property purchase), but this discretion is narrow.

The claim for rollover relief is made in the tax return for the year of disposal. Where the new asset has not yet been acquired at the date of filing, the taxpayer may claim provisional rollover relief and amend the return once the new asset is acquired.

Timing tip: where the disposal occurs just before the end of a tax year, the full three-year window still applies from the date of disposal — not from the year-end. The taxpayer therefore has three years plus the remaining days in the current tax year to complete the reinvestment.

How the Relief Works

The gain on the disposal of the old asset is calculated in the normal way. Rollover relief then reduces the base cost of the new asset by the amount of the deferred gain. When the new asset is sold, the deferred gain is added to any new gain arising and taxed at the rates applicable at that future time.

Example: Sole trader sells business premises for £800,000. Original cost: £300,000. Gain: £500,000. Buys replacement premises for £900,000. Rollover relief is claimed: the £500,000 gain is deferred. The new premises is recorded at a base cost of £900,000 minus £500,000 = £400,000. When the new premises is eventually sold for £1,200,000, the gain is £1,200,000 minus £400,000 = £800,000 (being the £500,000 deferred gain plus £300,000 new gain).

Partial Rollover: Reinvesting Less Than Proceeds

Where the purchase price of the new asset is less than the proceeds of the old asset, partial rollover relief applies. Only the amount reinvested in the new asset attracts rollover; the uninvested balance is taxable immediately.

Continuing the example: If the new premises cost only £700,000 instead of £900,000, the unreinvested proceeds are £800,000 minus £700,000 = £100,000. This £100,000 is immediately chargeable to CGT. The remaining £400,000 of gain (£500,000 minus £100,000) is rolled over into the new asset's base cost.

This makes it important to reinvest at least the full disposal proceeds (not just the gain) to achieve full rollover. If there is mortgage debt on the old asset, only the net cash received (after repaying the mortgage) needs to be reinvested in the new asset? No — this is a common misconception. Rollover is calculated by reference to the proceeds (the market value of what is received), not the net cash after debt repayment. If the old asset is sold for £800,000 but there was a £300,000 mortgage repaid from proceeds, the seller received £800,000 in law and must reinvest £800,000 to achieve full rollover.

Depreciating Assets and Holdover Relief

Certain qualifying assets are classified as depreciating assets — assets with a predictable useful life of 50 years or less. Fixed plant and machinery typically falls into this category (machinery has a finite useful life). Land and buildings are generally not depreciating assets (freehold property has an indefinite life).

Where the new asset is a depreciating asset, holdover relief applies instead of rollover relief. The key difference:

• Rollover relief deducts the deferred gain from the base cost of the new asset permanently.
• Holdover relief keeps the gain in a suspense account, crystallising it at the earlier of: (a) the disposal of the depreciating asset, (b) the date the depreciating asset ceases to be used in the trade, or (c) ten years after the disposal of the old asset.

If, during the holdover period, the taxpayer acquires a non-depreciating qualifying asset (e.g., land and buildings), they can elect to roll the deferred gain into that non-depreciating asset permanently. This is a planning opportunity: use temporary holdover against depreciating machinery while searching for permanent premises, then transfer the rolled-over gain into the land and buildings when acquired.

Interaction with BADR

Where rollover relief has been used to reduce the base cost of a new asset, the eventual disposal of that new asset may attract BADR (18% rate for 2026/27) if the conditions are met. The deferred gain and the new gain are both taxed at BADR rates, subject to the £1m lifetime limit. This makes rollover into a BADR-qualifying disposal particularly attractive.

Conversely, where rollover has been claimed but BADR is not available on the eventual disposal (e.g., because the business has been wound up or the trade has ceased), the deferred gain is taxed at the higher CGT rate.

Interaction with Incorporation Relief

Where a sole trader or partnership incorporates a business into a company in exchange for shares, incorporation relief under s.162 TCGA defers gains on all business assets (goodwill, premises, etc.) into the base cost of the shares in the company. This is an alternative to rollover relief that provides broader coverage. In principle, rollover and incorporation relief cannot be claimed simultaneously on the same disposal, but sequential use (rolling over business asset gains before incorporation) may be possible depending on timing.

Compliance Caveat

Rollover relief is available for qualifying trades — the trade use requirement is strictly interpreted by HMRC. Assets used partly for trade and partly for other purposes (e.g., a building partly let to third parties) may qualify only for partial relief. The three-year reinvestment window, the partial rollover calculation, and the classification of assets as depreciating or non-depreciating all require careful analysis. CGT rates, BADR rates, and the definition of qualifying assets are subject to legislative change. This guide reflects the law as at June 2026. Professional tax advice is essential before relying on rollover relief, particularly where significant sums are involved or where the asset classifications are unclear.

How Global Investments Can Help

Global Investments advises business owners and property investors on CGT mitigation strategies, including rollover relief, BADR planning, and the structuring of asset acquisitions and disposals. For internationally mobile clients, we also advise on whether UK rollover relief is preserved when the taxpayer moves abroad during the reinvestment window, and how overseas disposals interact with UK CGT. Contact us to discuss your situation.