Tax implications of trade and asset sales

Produced by Tolley

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

  • Tax implications of trade and asset sales
  • Stock ― trade and asset sales
  • Plant and machinery ― trade and asset sales
  • Premises ― trade and asset sales
  • Structures and buildings allowance (SBA)
  • Retaining premises to provide income
  • Goodwill and intangibles on trade and assets sales
  • Negative goodwill
  • Roll-over relief
  • Losses ― trade and asset sales
  • More...

A trade and assets sale may involve the disposal of specified assets, and possibly the assumption of certain liabilities, along with a trade. 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. This could involve the following:

  1. premises such as office buildings or factories

  2. trading stock

  3. plant or machinery

  4. other assets held on capital account

  5. intangible fixed assets, such as intellectual property (patents, know-how, etc) and goodwill

  6. debtors and cash

The consideration specified in the sale and purchase agreement (SPA) will usually be for the acquisition of the business as a whole. For the purposes of calculating the tax liability of the company disposing of the assets, the consideration needs to be broken down between the various components included in the sale. The way in which it is allocated between assets is a key area for tax planning.

For a transaction between connected parties, 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).

See Simon’s Taxes D6.436 for further details.

The Checklist ― tax considerations in a corporate trade and assets sale acts as a reminder of the key tax considerations that may arise as a result of a trade and assets sale.

Stock ― trade and asset sales

The disposal of stock is treated as a trading transaction and any resultant profit is subject to corporation tax. The method of stock valuation is dependant upon the relationship between the vendor and purchaser.

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 the market

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