Sole trade to partnership

Balancing charge on sale of asset

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Hi all,

Sole trader is thinking of ceasing his sole trade and selling the sole business asset (a barge; the business is of barge charter) for a gain. There will be a large balancing charge (circa £75K) and a small capital gain (circa £5K).

The client is a higher rate taxpayer. His wife (who just so happens to carry out the admin for the business) is a basic rate taxpayer.

Is there anything stopping the client bringing his wife in as a partner prior to ceasing trading activites, so that the balancing charge then gets split between the two of them? Will an election under S266 CAA2001 be necessary?

Thanks.

Replies (11)

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paddle steamer
By DJKL
07th Feb 2024 14:51

What balancing charge if 266/267 used?

267Effect of election
(1)If an election is made under section 266, the following provisions have effect.
(2)For the purposes of making allowances and charges under this Part, relevant plant or machinery is treated as sold by the predecessor to the successor—
(a)when the succession takes place, and
(b)at a price which gives rise to neither a balancing allowance nor a balancing charge.

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Replying to DJKL:
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By Software Seeker
07th Feb 2024 16:25

Thanks.

I mean the balancing charge on cessation of trade/sale of asset, which is proposed to happen after the transfer from sole trade to partnership (under a S266 election).

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Replying to Software Seeker:
paddle steamer
By DJKL
07th Feb 2024 16:45

Well, how artificial is this partnership, if created by transfer from ST with election how long will it trade before final cessation of trade within partnership.

(Sorry, did not read question very well initially)

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Replying to DJKL:
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By FactChecker
07th Feb 2024 18:17

Certainly read to me as though the proposed Partnership was but a step (with the life expectancy of a mayfly) along the way to ceasing the trade & realising the asset.
If not the case, then clarification of the plan/intentions might shed light?

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Stepurhan
By stepurhan
07th Feb 2024 22:04

Have you heard about something called the General Anti Abuse Rule? I believe a little bit of reading on that subject may prove beneficial before proceeding with your proposed plan.

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Replying to stepurhan:
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By Tax Dragon
08th Feb 2024 07:21

The sole trader is halving his proceeds (his wife will receive the other half). Two birds with one stone - even happier marriage and less tax. GAAR?

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Replying to Tax Dragon:
Stepurhan
By stepurhan
08th Feb 2024 15:47

Tax Dragon wrote:

The sole trader is halving his proceeds (his wife will receive the other half). Two birds with one stone - even happier marriage and less tax. GAAR?

Knee-jerk reaction to any plan that is essentially "do this thing that is clearly solely to save tax and with no real business purpose". I think in this particular situation you are correct that it doesn't apply.
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Replying to stepurhan:
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By Tax Dragon
08th Feb 2024 16:33

Most things that are clearly solely to save tax and with no real business purpose either fall foul of existing rules or are what Justin calls plain vanilla planning. You have to be going some I think for GAAR genuinely to apply.

But - does anyone remember DoTAS?

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Replying to Tax Dragon:
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By FactChecker
08th Feb 2024 17:33

".. does anyone remember DoTAS?"

Hooked by your elliptical style, I presumed for a moment that I had missed hearing about its demise!
But, although its potential impact is presumably felt more often in your sphere than in any I've occupied, I've observed little in the way of how it has altered what people either promote or utilise (at least at the 'legal' end of the profession).

I guess it provides a kind of safety-net for those who like to be creative with their schemes, but that was surely not the intention?

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Replying to stepurhan:
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By Software Seeker
08th Feb 2024 10:46

stepurhan wrote:

Have you heard about something called the General Anti Abuse Rule? I believe a little bit of reading on that subject may prove beneficial before proceeding with your proposed plan.

Yep, and that is something I absolutely realise needs to be considered. I suppose it's a little bit like transferring part ownership of an asset to a spouse prior to sale in order to split the gain and reduce the tax (which I believe isn't caught by the GAAR). The same, but different.

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Replying to Software Seeker:
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By Tax Dragon
08th Feb 2024 11:00

Different - and even easier to defend or refute depending on how business-like the partnership is, business being at the very heart of what a partnership is.

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