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Rolling over disposal gains on assets

QUESTION: I sold a property during 2013 that had been used in the family business for many years. There was a very substantial gain on the disposal and capital gains tax will be payable in January 2015 as I will be required to disclose the gain on my 2013/14 tax return. Is there anything at all I can do this year to avoid having to pay a large tax liability next January on my property disposal?

ANSWER: If you have realised a capital gain on the disposal of an asset during 2013 that was used in your business the gain arising on the disposal can be 'rolled over'. This means that any tax liability arising on the disposal of the asset can be deferred by buying another qualifying business asset within three years of the date of your disposal.

Also, if you made an investment in a qualifying business asset the year before your 2013 disposal then you can rollover the capital gain on the 2013 disposal against your prior year investment.

So, a reinvestment in another qualifying asset, during the four-year period starting 12 months before your disposal, will therefore allow you to avoid your January 2015 tax liability. Another way to avoid or defer the payment of tax on the disposal of an asset, including both business assets and non business assets, is by investing your proceeds into a company which qualifies for EIS deferral relief.

If you made a capital disposal in 2013 you are required to reinvest in a qualifying EIS company during a period starting one year before and ending three years after the date of your disposal.

If you do this, the original taxable capital gain arising on your asset sale is effectively frozen and no tax is payable until the EIS shares are sold. An added bonus is that any further gain made on the qualifying EIS shares is exempt from tax provided you hold the EIS shares for a minimum period of three years.

When you eventually sell the EIS shares the original gain on the disposal of your asset comes back into charge. However, this can be deferred again by making a further reinvestment into a qualifying EIS company.

In addition to avoiding a capital gains tax liability, investments in qualifying EIS companies currently attract income tax relief at 30 per cent on a maximum investment of up to £1 million.

Before taking steps to avoid or defer capital gains tax liabilities professional advice should be sought to ensure that the conditions for tax relief are fulfilled and to ensure the tax planning suits your personal circumstances.

* Feargal McCormack (f.mccormack@ fpmca.com) is managing partner of FPM Chartered Accountants (www.fpmca.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.