New queries, issue 4671

Hanging in the balance

Capital allowances on incorporation.

I have a problem that still seems to cause differences of opinion. It concerns capital allowances on incorporation. If I have a pool balance of say £20 000 but the assets in that pool are worth £30 000 what happens on the transfer of a business from a sole trader to a company?

Instinctively this feels that it ought to be a market value transaction but I understand that an election can be made for a transfer at tax written-down value. But I have seen it suggested that if the assets are sold for £1 then a balancing charge of £19 999 would be created. The company would then be entitled to a negligible allowance but this is more than compensated for by a balancing allowance of nearly £20 000 at marginal income tax rates...