Final Self Assessment – Balancing Charge on AIA Assets Transferred on Incorporation

[Mario - TFA]

Hello everyone,

I'm preparing the final Self Assessment return for a client who transitioned from sole trader to limited company status. He traded as a sole trader until the last day of the 2024–25 tax year.

As part of the incorporation, we prepared an Asset Transfer Declaration to move all business assets to the limited company at fair market value (totaling £17,000). All of these assets had 100% AIA claimed in previous tax years.

Since the sole trade has now ceased, I understand this is treated as a disposal of the assets for capital allowances purposes.

My question is: since the assets were transferred to the limited company in exchange for shares (using Incorporation Relief), and therefore no cash consideration was received, does that mean the full £17,000 fair value left on those assets need to be added as a balancing charge on the last self-assessment, and basically increase the taxable income by another £17k?

Thanks for your help!

 

[DWS]

Hello everyone,

I'm preparing the final Self Assessment return for a client who transitioned from sole trader to limited company status. He traded as a sole trader until the last day of the 2024–25 tax year.

As part of the incorporation, we prepared an Asset Transfer Declaration to move all business assets to the limited company at fair market value (totaling £17,000). All of these assets had 100% AIA claimed in previous tax years.

Since the sole trade has now ceased, I understand this is treated as a disposal of the assets for capital allowances purposes.

My question is: since the assets were transferred to the limited company in exchange for shares (using Incorporation Relief), and therefore no cash consideration was received, does that mean the full £17,000 fair value left on those assets need to be added as a balancing charge on the last self-assessment, and basically increase the taxable income by another £17k?

Thanks for your help!

Are you sure the transfer of the assets for shares is the best option?
Obviously you know more about the incorporation than me but have you explored maybe doing a s266 election?
That way the asset is transferred at WDV which you say is Nil with no balancing charge and the Director would have the MV of £17k in the DLA that they can draw once the Company is profitable.

 

[Mario - TFA]

Are you sure the transfer of the assets for shares is the best option?
Obviously you know more about the incorporation than me but have you explored maybe doing a s266 election?
That way the asset is transferred at WDV which you say is Nil with no balancing charge and the Director would have the MV of £17k in the DLA that they can draw once the Company is profitable.

I will look into it, thanks for your comment!