Section 86 — Income Tax Act 2007: Trade transferred to a company

Trade transferred to a company 86 1 This section applies if—

a a trade is carried on by an individual otherwise than as a partner in a firm or by individuals in partnership, b the trade is transferred to a company, c the consideration for the transfer is wholly or mainly the allotment of shares to the individual or individuals, and d in the case of any individual to whom, or to whose nominee or nominees, shares are so allotted, the individual's total income for a relevant tax year includes income derived by the individual from the company.

2 For the purposes of carry-forward trade loss relief, the income so derived is treated as—

a profits of the trade of the relevant tax year carried on by the individual, or b if the trade was carried on by the individual in partnership, profits of the individual's notional trade of the relevant tax year.

3 The tax year in which the transfer is made is a relevant one if—

a the individual is the beneficial owner of the shares allotted as mentioned above, and b the company carries on the trade, throughout the period beginning with the date of the transfer and ending with the next 5 April.

4 Otherwise a tax year is a relevant one if—

a the individual is the beneficial owner of the shares allotted as mentioned above, and b the company carries on the trade, throughout the tax year.

5 The income derived from the company may be by way of dividends on the shares or otherwise.

6 This section applies to businesses which are not trades as it applies to trades.