Topic 16: Unincorporated business

Question 1

When does succession to trade between connect persons occur?

Answer 1

If the business if being transferred as:

• as a going concern
• to a connect person
• an election is available to transfer the assets at their TWDV

Question 2

What are the tax implications of succession?

Answer 2

Consequences:

• no balancing allowance/charge for the transferor
• allowances for successor on TWDV at beginning of opening period.
• no AIA/FYA for successor.

Question 3

What are the 3 conditions for succession to trade?

Answer 3

1. An election must be made by both parties within 3 years of the succession taking place
2. Assets musts be used for trade
3. Both parties must be within the charge to UK tax

Question 4

What if no election for succession is made?

Answer 4

Deemed to be sold a MV
BA for transferor
Allowances for successor on MV
NO AIA/FYA for successor.

SBA always calculated on a time apportioned basis up to the date of cessassion.

Question 5

What are the IT tax implication of incorporation?

Answer 5

• Cessation rules inc. CA - final year
• CA > Ba/Bc > Succession relief no BA/BC TWDC
• Trading loss relief (Terminal/ CY and/or CB/Incorporation relief)
• 20/40/45%
• Extraction of funds from new business

Question 6

What are the NIC tax implication of incorporation?

Answer 6

• No longer liable to Class 2/4

- Potential liability for Class 1 if salary paid out

Question 7

What are the CGT tax implication of incorporation?

Answer 7

• Disposal of chargeable assets at MV

- Availability of reliefs eg incorp relief; gift holdover relief; BADR

Question 8

What are the IHT tax implication of incorporation?

Answer 8

No loss in value to the donor therefore n/a

BPR? PET? Exempt? CLT?

Question 9

What are the SDL tax implication of incorporation?

Answer 9

• Company liability if property transferred (L+B)

No SD on shares because shares are issued (new)

Question 10

What are the VAT tax implication of incorporation?

Answer 10

Sale of unincorp. business > TOGC > Outside scope of VAT

Shares > Outside scope of VAT

Question 11

What are the CT tax implication of incorporation?

Answer 11

• CT @ 19%
• Mostly likely to be a close co.
• Sole trader likely to be director/SH - Salary/Dividends
• Employee > Salary, Class 1 ee/ers, Class 1A allowable deductions
• SH - Dividends not allowable deduction for business.