The following Tax practice note Produced in partnership with Martin Wilson provides comprehensive and up to date legal information covering:
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:
the transfer of a trade between two UK taxpaying companies where, broadly, there is no change in the ownership of the trade
the transfer of a trade between connected persons
a change of trade, or the conversion of a trading company into an investment company, or vice versa, and
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.
Special rules apply where one company ceases to carry on a trade
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