Section 86 | Trade transferred to a company

(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.