If a sole trader converts to a two-person partnership (e.g., same trade and location, etc) on 6 April 2027 (the last sole trading day to be 5 April 2027), are they able to claim the annual investment allowance (AIA) on plant and machinery purchased in the year to 5 April 2027 (i.e., is this considered a cessation for capital allowances purposes?
Arthur replies:
The AIA cannot be claimed on expenditure incurred in the period in which the trade is permanently discontinued. If you look at HMRC’s Partnership Manual at PM163020, 163080 and 163090, you can see that 'If the partnership trade was previously carried on by one of the partners on their own' then there is no cessation. Similarly, in HMRC’s Capital Allowances Manual at CA29010 it states: 'So where there is a partnership of individuals you ignore a partnership change for [plant and machinery allowances] purposes if there is at least one person who is a member of both the old and new partnerships.’ So in your scenario, the AIA can be claimed.
