Asset sale - Tax issues

Question 1

How do you calculate the tax written down value?

Answer 1

cost at purchase - Capital allowance

Question 2

2 options for extracting value from a cash shell:

Answer 2

1. LIquidation

2. Pre-liquidation dividend

Question 3

What tax will the buyer have to pay on an asset sale?

Answer 3

SDLT

VAT (although if sold as a going concern - exempt)

Question 4

What is rollover on replacement of business assets?

Answer 4

• A buyer who disposes of qualifying assets within 1 year prior or 3 years after acquisition of a business can roll the gain from the disposal of the asset into the base cost of any qualifying asset.
• Effectively no tax is payable on the rolled asset as the value of the asset is used to pay for a new asset.

Question 5

How can a buyer limit their tax liability in the purchase of a business?

Answer 5

1. Offset interest on loan agaisnt profits
2. Rollover of business assets
3. Cost of acquiring income generating assets can be deducted from profits.
4. CApital allowances for capital assets received.

Question 6

When is VAT not payable on an asset sale? What is the statutory reference for this?

Answer 6

Art 5 VAT (Special Provisions) Order 1995 - When the assets are transferred as a going concern:

• Assets must be used in the same kind of business
• The buyer must be registered or become registered for VAT.