Chapter 4: Partnerships, successions and transfers
Overview
1933.This Chapter provides rules for the transfer of and succession to trades and for the continuity of partnerships.
1934.Section 557 gives the application of sections 558 and 559. Section 558 provides for the continuity of allowances to partnerships. Section 559 deals with transfers on succession without sale.
1935.Section 560 provides rules for the transfer of insurance company businesses and section 561 deals with the transfer of a UK trade from a company resident in one European Union member state to a company resident in another.
Background
1936.There are other rules for successions elsewhere in this Act. In Part 2, sections 263 and 265 provide parallel provisions to sections 557 to 559. Section 343(2) of ICTA also provides for capital allowances to be given to a successor company in some circumstances. That provision is left in ICTA so that readers see there the full provisions for company reconstructions. But the text of section 343(1) and (2) is given below for ease of reference.
Section 343 Company reconstructions without a change of ownership
“(1)Where, on a company (“the predecessor”) ceasing to carry on a trade, another company (“the successor”) begins to carry it on, and—
(a)on or at any time within two years after that event the trade or an interest amounting to not less than a three-fourths share in it belongs to the same persons as the trade or such an interest belonged to at some time within a year before that event; and
(b)the trade is not, within the period taken for the comparison under paragraph (a) above, carried on otherwise than by a company which is within the charge to tax in respect of it;
then the Corporation Tax Acts shall have effect subject to subsections (2) to (6) below.
In paragraphs (a) and (b) above references to the trade shall apply also to any other trade of which the activities comprise the activities of the first mentioned trade.
(2)The trade shall not be treated as permanently discontinued nor a new trade as set up and commenced for the purpose of the allowances and charges provided for by the Capital Allowances Acts; but—
(a)there shall be made to or on the successor in accordance with those Acts all such allowances and charges as would, if the predecessor had continued to carry on the trade, have fallen to be made to or on it; and
(b)the amount of any such allowance or charge shall be computed as if—
(i)the successor had been carrying on the trade since the predecessor began to do so, and
(ii)everything done to or by the predecessor had been done to or by the successor (but so that no sale or transfer which on the transfer of the trade is made to the successor by the predecessor of any assets in use for the purpose of the trade shall be treated as giving rise to any such allowance or charge).
The preceding provisions of this subsection shall not apply if the successor is a dual resident investing company (within the meaning of section 404) which begins to carry on the trade after 31st March 1987.”
Section 557: Application of sections 558 and 559
1937.This section is based on section 152 of CAA 1990. It sets out the Parts of this Act to which sections 558 and 559 do not apply.
1938.These are Parts 2, 6 and 10 (plant and machinery, research and development, and assured tenancies). Those Parts have separate rules.
Section 558: Effect of partnership changes
1939.This section is based on section 152(3) of CAA 1990. It provides for continuity of allowances if the members of a partnership change.
1940.Subsection (5) contains a change because of its application to property businesses. See Change 62 in Annex 1.
Section 559: Effect of successions
1941.This section is based on section 152(1) and (2) of CAA 1990. If an asset is transferred on succession, without a sale of the asset and the succession is following a deemed discontinuance, then the transfer is treated as a sale at market value.
1942.It does not apply to plant and machinery but section 265 provides a similar rule. See paragraph 911 above.
1943.If the succession is between connected persons then an election under section 569 may be available to substitute a lower figure. See paragraph 1973 below.
1944.Subsection (5) contains a change because of its application to property businesses. See Change 62 in Annex 1.
Section 560: Transfer of insurance company business
1945.This section is based on section 152A of CAA 1990. It provides what is known as a “step-in-shoes” rule for transfers of insurance company businesses.
1946.The transfer has to be approved by a court under Part I of Schedule 2C to the Insurance Companies Act 1982 or be a qualifying overseas transfer within paragraph 4A of Schedule 19AC to ICTA.
Section 561: Transfer of a UK trade to a company in another member State
1947.This section is based on section 152B of CAA 1990. It provides a “step-in-shoes” rule for the transfer of a UK trade if it is transferred from a company resident in one member state to a company resident in another.
1948.This section cannot apply unless section 140A of TCGA 1992 applies so it needs to be read with sections 140A and 140B of TCGA 1992.
