Tax on the Sale of Assets

Posted 01/08/2019

When a sole trader or a partnership sell a business asset, such as machinery or a building, the calculation of tax to be paid on the profits is calculated via the Capital Gains Tax pages less than reliefs that the sale of the asset is entitled to. Limited Companies pay Corporation Tax on the profits of the sale of an asset alongside the profits of the business’ trading. Relief on the corporation tax payable can be claimed if there are losses being brought forward from previous accounting periods, or if the company’s production and transaction meet any requirements for specific relief.

For self-employed traders and limited companies the tax is applied on the profit on the sale of the asset; the sale price of the asset less the purchase price. The market value of the asset at the time of purchase should be used if:
1) The asset was given away to an individual (excluding a marriage/civil partnership partner or a charity)
2) Sold for a lower value with intention to help the buyer
3) Inherited at an unknown value
4) Purchased and owned before April 1982
If an asset was withdrawn on hire purchase, the loan repayments do not affect the profit made on the asset and do not count as a deductible expense. The reliefs self-employed traders can deduct costs of the sale from the profit figure. Fees for advertising and selling the asset, such as hiring someone to carry out the sale can count as expenses to give tax relief. Any costs throughout the ownership of the asset which were incurred to improve the asset, not repairs and renewals, such as building an extension on to a property, can be deducted from the profit total. For property sales, stamp duty fees and solicitor fees are likely to be incurred which the individual can also claim against the profit figure.

The relief that a limited company can be as follows:
• Research and Development Relief (R&D Relief) – Expenses incurred in a project developed to advance science and technology, successful or unsuccessful, and it must relate to your company’s trade. Social sciences like economics and theoretical areas such as maths are excluded.
• The Patent Box – A relief on corporation tax applies if your company sells patented inventions and makes a profit from their sales. The company must own the patents and carried out qualifying development on the products or be in a group where one of the companies did the qualifying development.
• Relief for Creative Industries – Relief for companies that produce films, produce high-end, animation or children’s television shows, produce video games, production companies in theatre and orchestra, or museums and galleries who can claim relief on an exhibition.
• Disincorporation Relief – This relief allows a company to transfer its assets (maybe to a shareholder or the director’s own self-employed trade) without a corporation tax charge on the disposal.
• Terminal, Capital and Property Income Losses – Losses arising from the last 12 months of trade before dissolving a company, or losses coming from the sale of assets or from renting a property.
• Trading Losses – Losses created by trade in the accounting period by the company. These losses can be carried forward to offset against future profits or carried back and used against profits made in the last two years.

Tags: personal tax, corporation tax, asset, sale of asset, capital equipment