A long-established double glazing installation partnership run by two brothers will come to an end on 31 July 2019, when the younger brother leaves to form his brand-new sole trade on 1 September 2019 in the same line of business. The older brother will carry on trading in the same old partnership name, albeit as a sole trader. The partnership balance sheet reveals a van at cost £16,000 bought just over a year ago. This is the main partnership asset, and since annual investment allowance of £16,000 has already been claimed for capital allowances purposes, the written-down value to carry forward is nil. The van is currently worth around £10,000. It is registered and insured in the name of theeolder brother, although it was actually paid from the partnership bank account out of partnership earnings. Although the partnership will come to an end shortly, the two brothers have not yet decided who will get the van on departure of the younger brother. Since this new van has the livery of the old partnership, the logical step would be for the older brother to buy the younger brother’s share for £5,000. Then the older brother’s ‘continuing’ sole trade would merely bring forward the van’s written down value at £0, since a disposal value is not brought into account in this situation. But it seems the younger brother feels he may keep this new van for his brand-new sole trade, in which case younger brother would pay older brother £5,000. If he does this, how is the van treated for capital allowance purposes in the older brother’s continuing trade and the younger brother’s brand new business. Would the van go over to the younger brother’s new trade at market value £10,000 or written down value £0?

Arthur Weller replies:
The brothers are both leaving the partnership, but they are both continuing in the same business, each one on their own, so there is no ‘business cessation’ taking place here. In effect, the older brother is disposing of plant and machinery to a connected person, i.e. half of the van. £5,000 here is both the market value and the sale proceeds. The older brother will have a balancing charge on £5,000. Going forward, the younger brother will have a written down value for this van of £5,000.