Incorporation/CGT/DLA

Incorporation/CGT/DLA

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Hi All

Firstly, please forgive my lack of knowledge on this topic (I am still training (ATT)).  I have spent hours trawling through this site, and others, for the answer to my query and I read conflicting answers so am no further on.

We act for a partnership that incorporated in July 2010.

The assets in the partnership were plant and machinery and motor vehicles.  The motor vehicles were disposed in the final period and the plant and machinery was brought into the company at TWDV.

First set of Limited company accounts have been filed and personal tax returns and CT600 have been submitted (from what I can see – All incorrectly – (wasn’t me!)).

Goodwill was valued at £100,000 on incorporation and the directors’ loan account has been credited with this amount.  However, no CGT entries have been made on the former partners’ tax returns.  The goodwill was created prior to 1 April 2002 so I understand that it cannot be allowable for CT.

My queries are as follows:-

  • If S165 claim is made to holdover the gain on the disposal of goodwill, will this mean that no CGT is payable by either partner because if they sell their company in the future, the base cost of goodwill will be reduced by the heldover gain i.e. nil?
  • As S165 is gift relief, does this mean that there is no credit to directors’ loan account?  (presumably so as a gift is a gift – someone doesn’t owe you anything if you give them something for free)
  • S162 cannot apply as the motor vehicles were not transferred to the company?
  • The only way the directors could have a credit to their directors’ loan account would be if they crystallised the gain and paid CGT at 10% (after a claim for ER)?
  • Could they crystallise a gain just over their CGT AE in order to credit the directors’ loan account and then claim gift relief for the remainder and if so, how does this work?

The clients have already been told that they have no CGT to pay and a healthy DLA of £100,000 to draw down from so really, I am trying to find a way to correct these errors with minimum bad news to the clients.

Any help would be greatly appreciated! 

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By blok
06th Mar 2012 14:43

.

My queries are as follows:-

If S165 claim is made to holdover the gain on the disposal of goodwill, will this mean that no CGT is payable by either partner because if they sell their company in the future, the base cost of goodwill will be reduced by the heldover gain i.e. nil?  THERE WAS NO GIFT OF GOODWILL IF THE PARTNER RECEIVED A LOAN, SO THE GAIN SHOULD BE DECLARED.As S165 is gift relief, does this mean that there is no credit to directors’ loan account?  (presumably so as a gift is a gift – someone doesn’t owe you anything if you give them something for free) YES, SEE ABOVE.S162 cannot apply as the motor vehicles were not transferred to the company?  S162 WILL NOT APPLY BECAUSE THE BUSINESS WAS NOT EXCHANGED FOR SHARES.The only way the directors could have a credit to their directors’ loan account would be if they crystallised the gain and paid CGT at 10% (after a claim for ER)?  - YESCould they crystallise a gain just over their CGT AE in order to credit the directors’ loan account and then claim gift relief for the remainder and if so, how does this work?  THE VALUE FOR THE GOODWILL HAS BEEN ESTABLISHED.  THERE IS NO SCOPE FOR CHANGING THIS NOW.

The clients have already been told that they have no CGT to pay and a healthy DLA of £100,000 to draw down from so really, I am trying to find a way to correct these errors with minimum bad news to the clients.  SOMEONE HAS GIVEN BAD ADVICE.

Any help would be greatly appreciated! 

Thanks (1)
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By palmtree7
06th Mar 2012 16:01

Thank you very much for your help blok.

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