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Application for clearance s701 ITA 2007

Application for clearance s701 ITA 2007


We have a client who is a sole trader business who is selling up for cash and shares. We wish to treat the shares as capital rather than income. In order to do this, do we need to apply for clearance under s701 ITA 2007?

I believe this prevents a counteraction under s684 ITA 2007 .i.e HMRC cannot then come back and treat the shares as income

Can anyone clarify?



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01st Aug 2008 10:13

Section 701 is not relevant ...
... on a disposal of an unincorporated business - you can't have a transaction in securities where there aren't any. However, the consideration for the disposal, unless the contract is conditional, is taxable 'up front' regardless of how it is paid. It would be better to be paid in cash because then there is the possibility of deferring the gain or part of it by subscribing for shares in the purchaser - assuming the company qualifies under EIS rules. Or loan notes perhaps if these are redeemed in the fairly short term, so that the money can be used to subscribe for shares.

Another possibility of course would be to incorporate the business and then you could do a share exchange, but if the purchaser is expecting to write-off the goodwill that won't work if shares are acquired.

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