CA13200 - General: connected person and control sales: election to have sale treated as being for alternative amount
CAA01/S569 & S570
Sometimes the parties to a sale can make an election to have the sale treated as taking place for an alternative amount. They can do so if:
- the control test is met or there is a transfer treated as a sale by CAA01/S573 CA11540; and
- the tax advantage test is not met - CA13100.
These are the alternative amounts:
MEA - the unrelieved qualifying expenditure immediately before the sale.
RDA - if an RDA has been given, nil; in any other case, the qualifying expenditure.
If there is no alternative amount given the election has no effect because there is nothing to substitute for market value.
The election must be made by notice to HMRC not later than two years after the sale. It must be made by all the parties to the sale.
Once an election has been made all assessments and adjustments of assessments needed to give it effect should be made.
Where the control test CA13100 is met, the person(s) who have control when the election is made should sign the election. An election signed by a person who had control at the time of sale but who no longer has control when the election is made is not valid. For example, an election signed by a former director after ceasing to be a director is not valid, even if that person was a director at the time of the sale.
An election may not be made if:
- allowances or charges cannot be made on one of the parties to the sale; or
- the buyer is a dual resident investing company (see CTM34560)
The first condition means that an election cannot be made where balancing charges cannot be made on the buyer, for example, where the buyer is a connected exempt pension fund or the buyer is a non resident who is outside the UK tax net.
Once an election has been made any balancing charges that would have been made on the seller if there had been no change of ownership are made on the buyer.