Transfer of asset to Ltd Co

Transfer of asset to Ltd Co

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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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By User deleted
16th Jun 2015 19:25

Should you be dealing with bigger fish ...

... if you can't catch the small ones?

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By Gone Sailing
16th Jun 2015 21:34

What is that supposed to mean?

You know some people might just be growing their practice, or they might be very good at some things, but not others, and some may yet have a few things to learn.

So I guess this might turn into one of those discussions where accountants turn on each other, poorly disguised as humour, rather than helping each other.

Let's hope not eh?

 

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By User deleted
16th Jun 2015 21:45

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.

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By qad999
16th Jun 2015 21:51

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

 

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By User deleted
16th Jun 2015 21:57

What about ...

 ... option 3, qad999? (£5,999 balancing allowance)

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Replying to Ben McLintock:
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By qad999
16th Jun 2015 22:59

option 3 ?

BKD wrote:

 ... 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

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By stephenkendrew
17th Jun 2015 06:53

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.

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Replying to fawltybasil2575:
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By qad999
20th Jun 2015 00:22

.....

stephenkendrew wrote:

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

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By User deleted
17th Jun 2015 07:26

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.

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By Gone Sailing
17th Jun 2015 16:14

Accepted

As I said, "Have just read about 20 blogs and websites and am no nearer".

Am genuinely grateful for all the help, but another example of the problem is the above link is to a Taxation article on which is one year old and already out of date in respect of Entrepreneur's Relief.

Last month I received incomplete advice from a tax expert, and I can recall 2 occasions when I had to correct the HMRC SA Helpdesk.

Well spotted on the extra 9% C4 for the self employed, presumably in newco DR R&R £1 and DLA £1.

Overlap relief? oh my.

Hence Aweb, a very good resource.

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By User deleted
20th Jun 2015 08:04

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?

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Replying to Paul Crowley:
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By qad999
20th Jun 2015 21:22

effect on directors a/c is ignored

BKD wrote:

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

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By User deleted
20th Jun 2015 21:29

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.

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