A client has transferred its partnership trade to a Ltd co. Both partners are now directors and shareholders. The partnership ceased to trade on 31 March 08.
I would appreciate some guidance on interpretation of CAA 2001 s 61 & HMRC's Capital Allowances Manual para 2350
It would appear that market value is not required to be used for disposals to connected parties. ie if the TWDV bfwd is £30,000 this could be sold to the Ltd company for say £1,000 creating a balancing allowance in the partnership of £29,000 - with the obvious tax savings.
This seems a little odd - is it correct?
All comments very much appreciated.
Susan Kumar
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Huh?
s61 is perfectly clear - if the plant is sold at less than market value, then market value is used (subject to being restricted to cost). The connected party rules simply mean that the purchaser's qualifying expenditure is restricted to the highest amount of qualifying expenditure in the connected party chain. There is of course s266 to replace MV with TWDV but I'm unaware of any other circumstances where you could apply a notional £1 disposal value.
P & M Pool
As things stand at present it is still possible to sell the assets of a partnership to a company on incorporation for £1 and to use that value for CA purposes.
The exceptions to this are where an asset is subject to HP when the asset transfer takes place at a deemed value of the unpaid HP passing, plus the price paid.
There are also some anti avoidance measures in Sections 213-218, 230-232 and Sch 3 para 43 CAA2001. Finally in FA2008 some additional anti avoidance steps were added but these are not all encompassing.