Can a Limited Company defer CGT by reinvesting?Make Text Bigger
I would like to ask whether a Limited Company can defer tax by reinvesting a capital gain.
To clarify what is meant by “reinvesting a capital gain” let’s consider the following example:
In 2013 ABC Limited purchased a property for say 300k and spent say 100k on renovation. The property is not rented so the company has no revenue and has not made a profit, although it has on its books an asset worth 400k and a liability of 400k being a loan from shareholders.
An opportunity now exists to sell that property for 500k and reinvest in a new property costing 600k. The shareholders are prepared to lend the company an additional 100k to provide the company with the funds to proceed. If it does so the company will then have a liability in respect of loans from shareholders of 500k but will have assets of 600k arising out of the ” sale and reinvestment”.
Let’s assume that in a couple of years the company will sell this 2nd property and not reinvest so that the aggregate capital gain from both investments will then flow through to Corporation tax due to it being profit arising from disposal of assets.
So my question is whether the reinvestment in a 2nd property this year will assist to defer the corporation tax that will ultimately be payable on the capital gains until these are actually realised by divestment ( i.e sale without reinvestment)?
Or alternatively will the company have to pay Corporation tax this year on the capital gain on the 1st property regardless of the fact that this is not realised into cash due to the reinvestment?
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