Tax implications of trade and asset sale

By Tolley
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The following Owner-Managed Businesses 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
  • Rollover relief
  • Losses
  • VAT

A trade and assets purchase may involve the purchase of all the relevant assets, and the assumption of liabilities, along with a trade, or 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 are a series of separate disposals of the various assets involved.

Consideration 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.

Usually for an unconnected party transaction, the apportionment of consideration in the sale and purchase agreement (SPA) will be acceptable. However, 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 the carrying cost or the consideration for market value.

For further guidance on disposals of trading stock, see the Stock transfers guidance note.

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 acquired any new qualifying fixed assets. This may mean that they qualify for the annual invest

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