Disincorporation relief ended on 31 March 2018. No replacement relief has been proposed meaning that there are currently no specific reliefs in respect of disincorporating a limited company.
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This is a freeview 'At a glance' guide to disincorporation relief.
Disincorporation relief for small companies
At a glance
Disincorporation relief was introduced by the 2013 Finance Act.
The measure applies to disincorporations undertaken between 1 April 2013 and 31 March 2018.
If a company's shareholders want to transfer its business into sole tradership or a partnership business there will normally be a capital disposal of the company's assets of land and goodwill. This new relief is designed to remove that tax charge.
- A joint claim can be made by the company and its shareholders to allow qualifying business assets to transfer at a reduced value for CT and Capital Gains Tax purposes.
- The claim will allow the asset to be transferred at the reduced value so that no CT will be payable by the company on the transfer of the qualifying business assets.
- Claims will be restricted to those businesses where the market value of the classes of assets allowed for disincorporation relief does not exceed £100,000.
- Joint claims must be made to HM Revenue & Customs (HMRC) within two years of the date of the transfer of business assets and other eligibility criteria will also apply.
- Shareholders to whom the assets are transferred will inherit the transfer value for the purpose of Capital Gains Tax and the shareholders must use this transfer value in any subsequent transactions.
Conditions for a qualifying transfer
- The business is transferred as a going concern.
- All its assets are transferred, other than cash.
- The market value of land and goodwill included in the transfer does not exceed £100,000.
- The transfer is made to shareholders who are individuals.
- Those shareholders held shares in the company for 12 months prior to the transfer.
Transfer value
The disposal value of the relevant assets depends on the type of asset, when created and its tax treatment in the company accounts.
Land and property
The deemed disposal or transfer value is the lower of cost and market value.
Goodwill
The deemed disposal value is the lower of:
- Tax written down value and market value: where the company’s goodwill has been amortised under the intangibles regime and tax relief claimed (as s.735 CTA 2009).
- Cost and market value: where goodwill was recognised in the company’s balance sheet but no write down has been recognised for tax under the intangibles regime (as s.736 CTA 2009), or
- Nil: where goodwill was not recognised in the company’s balance sheet (as s.738 CTA 2009).
Explaining the above in more detail, the disposal value is set by a new s.849A added to CTA 2009. The transfer is treated differently depending on whether sections 735, 736 or 738 of CTA 2009 would apply to the disposal of the asset, were it not for Disincorporation relief.
Other assets transferred
Any other assets, such as plant, stock or debtors are not qualifying business assets for the purposes of this relief and so the value of these can be agreed on disposal by the company.
Disincorporation relief: tax Masterclass
For detailed guidance see Disincorporation Masterclass this explains everything you need to know about the rules in "At a glance" and detailed form, including the interaction of the different deemed transfer values and corporate intangibles regime. It provides worked examples. The Masterclass is only available to our subscribers.
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