Succession

Question 1

What changes if we are selling trade and assets to a connected person (>50% <75%)

Seller 3
Buyer 3

Answer 1

For Seller - All proceed are equal to the open market value not the agreed price paid

Sale of P&M is the lower of cost or proceeds unless a joint election is made for them to be transferred at TWDV

Stock is sold at MV unless a joint election is made for the higher of price paid or cost (if both are lower than MV)

For Buyer

cost = sale proceeds
tax treatment on goodwill is dependent on when seller created or acquired goodwill - now connected

NO AIA or FYA

Question 2

What are the conditions for Succession

Answer 2

Transfer conditions - Altd must cease to trade and Bltd continue to carry on the trade

Tax Condition - Both A ltd and B ltd must be subject to UK CT

Ownership conditions -The transfered trade must be at least 75% owned by the same person at some point in the period 1 year before and 2 years after.

Question 3

What are the succession rules that apply if all conditions are met

Answer 3

P&M transferred at TWDV - WDA are pro rota between the two companies in the year of transfer
No AIA FYA

Stock usually MV however joint election for lower of amount paid or original cost (deferring profit)

No terminal loss relief

Trade losses are automatically transferred (unless major change)

Question 4

When are trade losses restricted

Answer 4

When the sellers retained liabilities exceed their retained assets. Losses restricted by net liability retained.