Capital Gains Tax: Rollover and Hold-Over Relief Explained

Capital Gains Tax (CGT) can be a significant cost when disposing of business assets.

Fortunately, two valuable reliefs, Rollover Relief and Hold-Over Relief, can help defer or reduce this tax liability in certain situations.

Though they sound similar, they serve different purposes and apply in different contexts. This guide explains both, clarifies their differences, and outlines when and how each may be used.

What Is Rollover Relief?

Rollover Relief allows businesses or individuals to defer CGT when they sell or dispose of a business asset and reinvest the proceeds into a new qualifying asset. Instead of paying CGT immediately, the gain is “rolled over” into the cost of the new asset, reducing its base cost. This means the gain will only be taxed when the new asset is eventually sold.

Qualifying Conditions for Rollover Relief

To qualify for Corporate Gains Tax Rollover Relief, several conditions must be met:

• Timing: The replacement asset must be acquired within a specific window—starting 12 months before and ending three years after the disposal of the original asset.
• Trade Use: Both the old and new assets must be used during a trade.
• Reinvestment of Proceeds: The relief is restricted if only part of the disposal proceeds is reinvested.
• Time Apportionment: Where the original asset was only partly used for trading purposes, relief is apportioned accordingly.

Prompt Use of New Asset: The new asset must be brought into trade use without delay, although HMRC allows a short period for necessary improvements.

Depreciating Assets

Where reinvestment is made into depreciating assets (i.e., those with a predictable life of 60 years or less), different rules apply:

• The gain is not deducted from the cost but instead 'frozen.'
• It becomes chargeable when the asset is disposed of, the cessation of trade use is ceased, or ten years after acquisition.
• Should a non-depreciating asset be acquired before the frozen gain crystallises, the gain can be rolled over again, effectively extending the deferral.

What Is Hold-Over Relief?

Hold-over relief helps reduce or delay Capital Gains Tax when certain conditions are met. It applies when an individual or the trustees of a settlement give away a capital asset as a gift.

With this relief, the person giving the gift (the donor) does not have to pay Capital Gains Tax at the time of the gift. Instead, the gain is ‘held over’ and passed on to the person receiving the gift (the donee). The donee takes on the asset with a reduced value for tax purposes, meaning the gain is deducted from their starting value (base cost) and they may pay tax if they sell the asset in the future.

Qualifying Assets for Section 165 Hold-Over Relief

You may be able to claim Hold-Over Relief under Section 165 if the asset being gifted falls into one of the following categories:

• An asset (or part of one) that is used in a trade, profession, or vocation carried out by:
  • The person making the gift (the donor),
  • The donor’s personal company, or
  • The trustees of a settlement, or a beneficiary who has a life interest in the trust.
• Shares or securities in a company that is either:
  • Not listed on a stock exchange (an unlisted company), or
  • The donor’s personal company,
    and in either case, the company must be:
    • A trading company, or
    • A holding company of a trading group.
• Transfers of agricultural property may also qualify.

Rollover vs Hold-Over Relief: What’s the Difference?

Should You Claim Rollover or Hold-Over Relief?

While both reliefs defer CGT, they should be used strategically:

• Rollover Relief is useful when you plan to reinvest and continue trading.
• Hold-Over Relief suits family succession planning or asset transfers with little or no payment.
• Sometimes, it may be better not to defer. For example, if a lower CGT rate applies now (such as under Business Asset Disposal Relief), paying tax immediately may be more tax-efficient in the long run.

Conclusion

Both Rollover and Hold-Over Relief offer powerful ways to manage Capital Gains Tax on business assets. Understanding their rules and differences is essential to avoid costly mistakes and maximise available tax reliefs. Proper timing, use of assets, and accurate record-keeping are key to making the most of these reliefs. Professional advice is strongly recommended, especially in complex or high-value transactions.