Introduction to this document

Election to transfer assets at written down value

Where you transfer your sole trader or partnership business to a company, plant and machinery or other tangible fixed assets are often transferred too. Strictly, these assets have to be transferred at market value. Provided certain conditions are met, you can make an election (jointly with the successor company) to transfer the assets at written down value instead - meaning no charge arises.

When can you use the election?

For the election to be made, there must be a cessation of the unincorporated business, and the following conditions must be met:

  • the predecessor and successor are connected with each other
  • both the predecessor and successor are within the charge to UK tax on the profits of the qualifying activity
  • the successor is not a dual resident investing company.

Example. John started a sole trader business from scratch and after three years transferred it to a company. The value of the plant transferred was £80,000, but the written down value was only £5,000. In order to avoid a taxable balancing charge of £75,000, he and the new company make a s.266 election, and the assets are transferred at £5,000.

How to make the election

The election must be made in writing within two years of the date of transfer and needs to be made jointly. Both the transferee and transferor must sign it.