Q&A: Does our newly incorporated partnership have a problem with capital allowances?

Q. After several years of successive growth, my husband and I have decided to incorporate our partnership. We have a number of assets used in the trade for which we have claimed relief using the annual investment allowance. As the trade is being effectively disposed of to the new company, do we have a problem with capital allowances?

A: You are right to be concerned. As you and your husband will be connected to the company, the default position is that assets are deemed to transfer at market value. If the annual investment allowance (AIA) has been claimed, a balancing charge can arise under the capital allowances regime. Please note, this is not a Capital Gains Tax issue as incorporation relief should be available if the trade is being transferred wholesale.

To prevent a charge arising in this situation, you can make a claim under section 266 CAA 2001. This treats the assets as transferred at their written down value, i.e., nil where the AIA has relieved the cost in full. You need to make the claim jointly with the new company, and in writing within two years of the date of the transfer.

For further information on capital allowances, please visit GOV.UK.

About the Author

Beverley Howells

Partner

Beverley is a partner with Torgersens, specialising in tax. Her role covers all aspects of taxation, from managing compliance to providing business advice. Her main areas of expertise are in business tax and corporation matters and in particular, acting for owner-managed businesses. Having joined the firm as a graduate trainee, Beverley qualified as a Chartered Accountant in 2000.   Outside of work, Beverley’s favourite place is the beach, enjoying a walk along our beautiful North East coastline. Ideally, she would be joined by a canine companion and has recently started a campaign for her own office dog! 

To get in touch please e-mail beverley.howells@torgersens.com.