I have a client who incorporated their sole trader business. The net book value of the assets in the sole trader are say £2,000 pre-incorporation and due to AIA's in the sole trader the TWDV is £nil. I am told that the market value of these assets, comprising specialist tools and IT are c£5,000.
My question is, If I elect for S266 and transfer the assets over to the Limited company at £nil for tax purposes, can I introduce the assets into the Balance sheet of the company at say £5,000 - Dr Assets & Cr DLA - Giving the Director an amount to draw down tax free ?
I appreciate that I can not make any capital allowance claim in the company in respect of the assets trf as they will be introduced at £nil.
Also, if the Director receives a credit of £5,000 in his loan account on incorporation, being the MV of the assets, what are the implications in the Sole Trader accounts and more importantly his SATR?
Can the Director really obtain a credit of £5,000 in the company without there being any tax consequences personally?
Thanks for your help.
Replies (5)
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Yes he can
If the assets are genuinely worth £5k then he should be able to sell them to the company for that sum without fear of HMRC challenge. The whole point of s266 is to substitute TWDV for consideration - for capital allowance purposes only. An election to transfer at TWDV of £nil will have no impact on his SATR (other than to avoid a balancing charge that would otherwise arise).