CheckLists.Tax (beta)
E6. Transfer of a trade/business
CHARGEABLE GAINS
​
Incorporation relief
​
- Conditions for relief
​
(1) Person other than company
- Company includes unincorporated association (CG65710).
- Unit trust scheme treated as company (TCGA s.99; CG65710).
​
(2) Transfers a business as a going concern
- Business requires a degree of activity as opposed to passive investment (CG65715; Ramsay v. HMRC [2013] UKUT 226 (TCC)).
- HMRC accept that there is a business where individual spends 20+ hours per week on activities indicative of business (CG65715).
- Professions and vocations likely can amount to businesses (see, by analogy, IHTA 1984, s.103(3); LLP Act 2000, s.18).
- At the time of transfer, must be active and operating, doors open for business (CG65710).
- Not necessary to prove that transferee will continue operating business, but must be capable of being so operated (CIR v Gordon 64 TC 173).
(3) Together with the whole of its assets (other than cash)
- Must include assets not shown on balance sheet, such as goodwill (CG65710).
​
(4) Transfer is to a company
- See above on what is a company for these purposes.
​
(5) Transfer is wholly or partly in exchange for shares in the receiving company
- The shares must be consideration for the transfer.
- No time limit for receipt of shares, but HMRC expect it to be fairly prompt (CG65720).
- Consideration other than shares is permitted, but leads to a restriction of relief (see Effect of relief, below).​
​
Legislation: TCGA s.162;
Cases:
HMRC manuals: CG65700;
Commentary:
See also:
​
- Partnerships and LLPs
​
- Relief available to partners who are individuals where whole of partnership business is incorporated (CG65700).
- Compute relief separately for each partner (CG65700).
- Relief not available where partnership/LLP incorporates into existing corporate member, because corporate partner already owns a share of the business (CG65700).
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
- Assets withdrawn from business prior to transfer
​
- Question of fact whether such assets were part of assets of business that needed to be transferred (CG65710).
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
- Effect of relief
​
- Net gain on disposal of business assets (after deduction of allowable losses) deducted from cost of shares.
- Where consideration not wholly shares, apportion (TCGA s.162; CG65740).
- Consideration valued using market value rule where vendor and company are connected (CG65740).
- Overall value of share consideration and non-share consideration should equal value of business (CG65760).
- Deduction cannot exceed the cost of the shares, which will be the net value of the business (CG65740; CG65765).
- Amount not deducted remains chargeable.
- Relief is automatic, no need for claim (CG65700), subject to election to disapply relief by relevant date (TCGA s.162A; CG65730).
​- Relevant date for election to disapply varies based on whether shares are disposed of by transferor or spouse (TCGA s.162A(3) - (5)).
Legislation:
Cases:
HMRC manuals: CG65750 onwards;
Commentary:
See also:
​
- Transfer of business liabilities to company
​
- No requirement to transfer liabilities to company, but often done (CG65745).
- Assumption of liabilities by company is consideration leading to restriction of relief.
- HMRC concession to treat business liabilities transferred as not being consideration (ESC D32; CG65745).
- Concession not applicable where attempt to use for tax avoidance.
- Transfer of liabilities usually has to be by way of novation.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Transfer of non-UK trade to non-resident company (roll-over relief)
​
- Conditions for relief
​
TCGA 1992, s.140
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
- Effect of relief
​
TCGA 1992, s.140
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
INCOME TAX
​
- Same trade may continue post-transfer
​
- Where a trade is transferred as a going concern, the seller permanently discontinues trading, but the trade itself is not permanently discontinued and is the same trade before and after (Barr; Morgan at 45).
- "I think the true view is that the section regards the question whether the trade itself does or does not “continue” as being completely divorced from the ownership of the trade at any particular time. Moreover, I think this view is in accordance with the ordinary use of the word “discontinuance” as applied to a trade or business. If A.B. sells his business to C.D., and retires to a life of leisure, but C.D. carries on the business just as A.B. previously carried it on, I do not think it would occur to the ordinary person to say that the business had been discontinued. He would say: “A.B. has sold his business and it is being carried on by C.D.”" (Barr at 797).
​
Legislation:
Cases:
IRC v. Barr [1954] 1 WLR 792 (HoL);
Morgan v. Tate & Lyle Ltd [1955] AC 21 (HoL);
HMRC manuals:
Commentary:
See also:
​
Cessation of trade
​
- Sale/incorporation results in deemed cessation of trade
​
- As a matter of general principle, a trade may be the same trade before and after a transfer to a third party as a going concern (see above).
​
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Capital allowances
​
- Sale/incorporation results in disposal of business assets and cessation of qualifying activity
​
- No writing down allowances available in chargeable period in which qualifying activity ceases (CA 2001, s.55(4)).
- Balancing charges and allowances arise for single asset pools and other pools (CA 2001, s.65).
- Disposal value for capital allowances purposes cannot exceed original expenditure (any gain dealt with as a chargeable gain).
- Identify the net proceeds of sale of all property disposed of and apportion between assets on just and reasonable basis, irrespective of whether parties purport to allocate proceeds (CA 2001, s.562).
- Disposal values calculated in accordance with CA 2001, s.61.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
- Disposal value for connected party sale
​
- Deemed market value disposal on succession does not apply where assets are sold because relevant assets are those used for the new qualifying activity "without being sold" (CA 2001, s.265).
- Deemed market value applies where sale is at less than market value and purchaser not able to claim allowances (s.61(2)(Item 2)).
- Where connected vendor and successor are both within the charge to tax on the qualifying activity, they can elect to be treated as having sold at the written down value (CA 2001, ss.266 - 267). This applies even if assets are sold (s.266(3)).
​- Query whether sale of assets for £1 is effective to give rise to balancing allowances - anti-avoidance rule in CA 2001, s.215 where transaction or scheme has a main purpose of obtaining a tax advantage.
Legislation:
Cases:
HMRC manuals:
Commentary: Simon's Taxes B9.105; Hanging in the balance, Taxation 2018, Issue 4674;
See also:
​
- Transfer of trade between companies under common ownership
​
CTA 2010, s.948; CAA 2001, s.560A.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Losses
​
- XX
​
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
​
Transactions in securities
​
- Sale of shares following transfer of business out of company
​
- IRC v. Wiggins - Shareholders wanted to realise value of a valuable piece of trading stock whilst retaining company business, so the company transferred the business to Newco and Oldco was sold. Held: the sale price reflected the value of the trading stock and the receipt of consideration (share purchase price) was in connection with the transfer of the business.
Legislation:
Cases: IRC v. Wiggins [1979] 1 WLR 325;
HMRC manuals:
Commentary:
See also:
​
- Acquisition of insolvent company with intention to transfer business to company to enable it to repay worthless debts caught
​
- Bamberg - T bought an insolvent company and debt owed by that company before selling the company to his own company that lent money to the insolvent company to allow its debts to be repaid.
- T's company also transferred its trade to the insolvent company to allow it to generate profits to repay the debt, but that was not caught because the insolvent company did not have distributable reserves and those profits, once made by the insolvent company, did not represent assets which were available for distribution by T's company (§21).
​
Legislation:
Cases: Bamberg v. HMRC [2010] UKFTT 333 (TC);
HMRC manuals:
Commentary:
See also:
​