Capital allowances and company reconstructions
Produced in partnership with Martin Wilson
Capital allowances and company reconstructions

The following Tax practice note Produced in partnership with Martin Wilson provides comprehensive and up to date legal information covering:

  • Capital allowances and company reconstructions
  • Transfer of a trade without a change in ownership
  • Anti-avoidance
  • Transfer of trade during an accounting period
  • Transfer of a trade between connected persons
  • Change of trade, or conversion of an investment company to a trading company, or vice versa
  • Successions without a sale (including incorporations)
  • Expenditure prior to incorporation

Where a transfer of assets (as opposed to a transfer of shares) results in the transfer of a trade or other qualifying activity, the capital allowances rules for plant and machinery can lead to balancing charges (in effect, negative capital allowances, commonly referred to as a ‘claw-back’). A balancing charge increases taxable profits, thereby giving rise to an additional tax liability.

The legislation provides mechanisms for avoiding this outcome in certain commercial situations where specified conditions are met.

This Practice Note looks at the capital allowances rules for plant and machinery applying to:

  1. the transfer of a trade between two UK taxpaying companies where, broadly, there is no change in the ownership of the trade

  2. the transfer of a trade between connected persons

  3. a change of trade, or the conversion of a trading company into an investment company, or vice versa, and

  4. successions without a sale, including on incorporation

For a general explanation of how capital allowances for plant and machinery are calculated, including the meanings of the terms balancing charge, balancing allowance, disposal value, qualifying expenditure, qualifying activities, tax written down value, writing down allowances and pooling, see Practice Notes: How plant and machinery allowances are claimed—income tax and How plant and machinery allowances are claimed—corporation tax.

Transfer of a trade without a change in ownership

Special rules apply where one company ceases to carry on a trade

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