Problem with Capital Allowances After Incorporating Partnership

Q. After several years of successive growth, my wife 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 correct to be concerned. As you and your wife will be connected to the company, the default position is that assets are deemed to transfer at market value. If the AIA has been claimed, a balancing charge can arise under the capital allowances regime. Note, this is not a CGT issue as incorporation relief should be available as long as the trade is being transferred wholesale.

In order 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.

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