Income Tax (Trading and Other Income) Act 2005 section 334E

Effect of election where predecessor and successor are connected persons

Section 334E deals with how the cash basis rules apply when plant or machinery is treated as transferred between connected persons who are predecessor and successor in a property business, following an election under the Capital Allowances Act 2001.

• Where a property business enters the cash basis and a connected persons election treats plant or machinery as sold from predecessor to successor, the successor steps into the predecessor's shoes for all purposes of the cash basis rules
• Everything done to or by the predecessor in relation to the plant or machinery is treated as if it had been done to or by the successor
• Any actual expenditure the successor incurs on acquiring the plant or machinery is ignored when calculating the property business profits for that tax year
• This ensures continuity of treatment and prevents a double deduction where assets pass between connected persons under an election