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How to transfer a sole trade to a family member?

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I have a client who has been trading as a small hardware store for approximately 15 years. They now wish to cease the business and the lady's brother has decided to take the business over. The business does not own the premises they trade from nor do they hold any equipment on the balance sheet. Therefore, am i correct in saying that the only chargeable transfer will be the goodwill of the business? If so, how should this be valued? The business is making small profits each year of approximately £12k. The only other assets the business holds are stock (approx £8k) and cash (will be retained by the current trader). On the transfer from sister to brother no money will change hands for either goodwill or stock. What tax implications will these have for each party? 

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By DJKL
16th Jul 2019 14:48

Despite no equipment on the balance sheet there may well be equipment, just fully written down equipment.

Given connected parties the closing stock and equipment ought to have values ascribed and accounted for by the ceasing trader. If he/she is waiving the value then this is obviously a gift to the sibling with possible IHT implications .

If the owner works full time in the business at the profit level indicated there likely is little/no goodwill.

I would have thought the question of tenure to trade from the premises would be the most important point, if the premises are leased then assignment of the lease looks critical.

From a cashflow perspective what is the vat registration status of the two entities?

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By dsuit
to DJKL
16th Jul 2019 15:16

I had thought there would be little goodwill given the annual profit position as well as the fact that the shop is situated in a very small town and although the business will carry on in the same premises it is only on a 6 monthly lease basis.
Neither the current trader nor proposed are VAT registered as the business is under the registration threshold. The shop is open full time in summer and 3-4 days per week in winter as it is in a seaside town and therefore trade is relatively seasonal.
I would hope that no charge to IHT would be triggered as the donor is still in her 30's.
In the final sa return for the current trader then there should be no capital gain declared? Trade should be ceased in the return and relief taken on the cost of the stock eg £8k?
Can the stock be brought into the new trade as if purchased even though no money changed hands?

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By dsuit
to DJKL
18th Jul 2019 14:02

Hi DJKL, have you any further thoughts on my others queries raised? I'd be interested to hear your opinion.

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17th Jul 2019 11:20

I can recommend an agent who can value the business.

Feel free to contact me.

[email protected]

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