A tool is being transferred with the business into a Ltd Co.
Original Cost to sole trader: £10,000 and NBV is £6,500
Current Market Value £4,500
Tax WDV £6,000 (AIA not claimed)
Please what are the tax implications and options - for the ceasing sole trader and the new company.
I know the numbers are rather small, but I have a bigger fish in the pipeline and I need to get my head on this. Have just read about 20 blogs and websites and am no nearer (!). Also can't find on Aweb - sorry if this is a repeat.
Replies (13)
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I'm sorry but ...
... the issue you're asking about is about as basic as it gets. Having said that, I could fill an A4 page discussing all of the options and implications, all of which which will depend on the precise circumstances of your client. As I know nothing about those circumstances, I can't be bothered to give you a dissertation based on ifs and buts.
number of issues
1. can elect (both transferor and transferee) to t/f tax wdv to newco who claims wda in future, so no BA or BC for sole trade - in writing signed by both sole and newco
2. or if no election - treat as disposal in sole trader pool at mkt value ,, sole gets £1500 BA , newco then gets £4500 mkt value as a plant addition, but only wda due no aia - due to connected persons
I see what BKD is getting at , there are many other issues that you need to be aware of when transferring a trade to ltd co, otherwise you might be inadvertantly laying a few time bombs that might go off in future
maybe invest in some resources , eg - issues are similar whether p/ship or sole
http://www.taxation.co.uk/taxation/Articles/2014/06/10/326271/good-company
option 3 ?
... option 3, qad999? (£5,999 balancing allowance)
but there cant be a balancing allowance of £5999 on figures he gave , disposal in pool has to be at mkt value (stated as £4500) (and he says tax wdv b/f is £6k ) ,..... if he doesnt elect
yes there can!
Sell the assets to the company for £1.
Balancing allowance of £5,999 for the sole trader.
This would be advantageous if it saves the sole trader tax and NI at 29%, 42% or possibly 49% since the company loses tax relief on the assets at 20%.
This may, however, not be beneficial in the particular circumstances if the sole trader is only saving NI at 9% or not using up their personal allowance. You then have to consider all the circumstances of the sole trader's tax position such as the level of profits, overlap relief, other income and income for tax credits.
.....
Sell the assets to the company for £1.
Balancing allowance of £5,999 for the sole trader.
This would be advantageous if it saves the sole trader tax and NI at 29%, 42% or possibly 49% since the company loses tax relief on the assets at 20%.
This may, however, not be beneficial in the particular circumstances if the sole trader is only saving NI at 9% or not using up their personal allowance. You then have to consider all the circumstances of the sole trader's tax position such as the level of profits, overlap relief, other income and income for tax credits.
Oh Dear !.. more time bombs
Exactly the point(s) I was alluding to, Stephen
And perhaps I was a tad harsh on the OP - others seem to have a misunderstanding of the rules.
There is of course option 4 (and many others) - create a balancing charge of up to £4k. Which could be appropriate in certain circumstances.
Oh dear, indeed
You have a client facing the option of saving tax at 61% now or at 20% at some time in the future. How would you advise?
effect on directors a/c is ignored
You have a client facing the option of saving tax at 61% now or at 20% at some time in the future. How would you advise?
so you want to use s 61 (2) 1.. ?
doing it that way (payment of £1) leaves precious little as a directors a/c credit for the sale ( ie it has to be the £1) and nil tax wdv bf in ltd co.
rather than the election route .. ie a) much higher value in directors a/c (to draw out later tax free) and b) transfer of full tax wdv to company
Horses for courses
I never said that there was a right way and a wrong way - especially since we know nothing about the circumstances in this case. I was merely pointing out the fact that you missed a further option, which is the most efficient in certain circumstances.