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Rollover relief into Fixed Plant & Machinery

Farming client sold land and reinvested proceeds into Fixed Plant & Machinery

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My client sold land used for the farming business and made a substantial gain.

The full proceeds were reinvested in new dairy machinery which, being fixed plant and machinery, I believe entitles them to Rollover the gain.  I appreciate that there are some differences in how Rollover Relief works where the reinvestment is made into a wasting asset.

My question, which I am sure is simple, is presumably in the Balance Sheet, the cost of the dairy machinery will be reduced by the held over gain?  Assuming so, this will mean a reduced depreciation charge.  Presumably it will also follow that a claim for Capital Allowances (AIA) will only be able to be met in respect of the net cost of the dairy machinery (cost less rolled over gain).

If anyone could confirm this, it would be a great help.

Many thanks

Replies (5)

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By Tax Dragon
22nd Jan 2021 06:59

No of course not. Where would your double entry be? How would your balance sheet balance?

The difference for RoR is that it's not really rollover. The gain is clipped to the fixed plant until such time as a real rollover asset is bought (and rollover claimed). If that doesn't happen inside 10 years, the clip rusts through and the gain is taxed.

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Replying to Tax Dragon:
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By stephenpotter
22nd Jan 2021 07:05

Many thanks, I was wondering how I would complete the double entry.
So my client is still entitled to claim a full AIA in respect of the full cost of the new dairy machinery?

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Replying to stephenpotter:
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By Tax Dragon
22nd Jan 2021 07:17

You are confusing tax and accounts. In a confusing way. You wouldn't say "my client is due full AIA so I must have to write down the full cost in the accounts in year 1", would you? Similarly, I don't see that the ability to claim CAs is changed because you do or don't show this or that as cost in the accounts.

CAs and CGT work together in ways prescribed by law. As it happens, I agree your conclusion (that the fixed asset holdover relief doesn't affect the cost qualifying for CAs), but not for the reason you give.

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Replying to Tax Dragon:
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By stephenpotter
22nd Jan 2021 09:23

Many thanks for all of your help, it is very much appreciated.
Can I just clarify, when you say you agree the conclusion, you do mean that an AIA claim in respect of the full cost of the Machinery can be made?
Sorry to labour this point

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Replying to stephenpotter:
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By Tax Dragon
22nd Jan 2021 10:47

It doesn't reduce the CA qualifying expenditure. Does this answer your question?

CGT is separate. But the logic might make more sense to you if you remember (maybe look up) how this form of 'rollover' works for CGT. The gain is bagged up and stuck (different metaphor!) to the new asset. It stays there until: it is detached and rolled over properly into the purchase of, say, more land; it is detached to dispose of the asset; or it falls off after ten years. It doesn't reduce the CGT base cost (hence to my mind should not be called 'rollover' at all, but, hey, everyone calls it so). In the second and third cases, it is taxable when detached. In short, it's either taxed or relieved elsewhere. So it would be 'unfair' if it nobbled your CAs.

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