Tax implications of trade and asset sale

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Tax implications of trade and asset sale
  • Stock
  • Plant and machinery
  • Premises
  • Goodwill and intangibles
  • Roll-over relief
  • Losses
  • VAT

A trade and assets sale may involve the disposal of the relevant assets, and possibly the assumption of certain liabilities, along with a trade. Alternatively, specified assets or liabilities may be retained by the seller. The tax implications of the transaction will depend on the specific items being transferred, since there is a series of separate disposals of the various assets involved.

The consideration specified in the Sale and Purchase Agreement (SPA) will usually be for the acquisition of the business as a whole. For tax purposes, this needs to be broken down between the various components included in the sale. The way in which the consideration is allocated between assets is a key area for tax planning.

For an unconnected party transaction, the apportionment of consideration in the SPA will usually be acceptable but HMRC may impose a ‘just and reasonable’ basis in certain circumstances (see below).

Stock

For unconnected party transfers, the amount apportioned to stock in the SPA is normally accepted by HMRC as the tax value and so no tax adjustment is necessary. HMRC may, however, impose a ‘just and reasonable’ basis of valuation where it considers the value has been manipulated to obtain a tax advantage.

For connected party transfers, stock is transferred at market value for trading income purposes. A joint election is available to substitute the higher of carrying cost or consideration for market value.

Plant and machinery

When plant and machinery, which qualifies for capital allowances, is acquired as part of a trade and asset sale between unconnected parties, they are entitled to capital allowances in the same way as if the company had acquired any new qualifying fixed assets. This may mean that they qualify for the annual investment allowance (AIA) if the company / group has not already utilised its annual allowance. For further guidance

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