Income Tax (Trading and Other Income) Act 2005 section 240E

Effect of election where predecessor and successor are connected persons

Section 240E deals with how the cash basis rules apply when a connected predecessor business transfers plant and machinery to a successor business, and both parties have elected to treat the transfer as a tax-neutral succession.

• This section applies where a person using the cash basis is a successor who has received plant or machinery from a connected predecessor under a joint election
• The successor steps into the shoes of the predecessor, inheriting the full history of everything done to or by the predecessor in relation to the plant and machinery
• Any actual expenditure the successor incurs on acquiring the plant or machinery from the predecessor is ignored when calculating trade profits for that tax year
• The terms "predecessor" and "relevant plant or machinery" carry the same meaning as defined in the Capital Allowances Act 2001