This is a free view at a glance guide to Incorporation relief. Subscribers see here 

Incorporation (rollover) relief (s162 TCGA 1992): transfer of a business to a company

This Capital Gains Tax (CGT) relief is available to individuals, including trustees and partners, who are running a business and then transfer it to a limited company.

  • When you transfer the capital assets of your unincorporated business (as a sole trader or partner in a partnership) to a company in exchange for shares, the gain on the disposal is deducted from the base cost of the new shares issued to you by the company.
  • The assets are transferred at market value and their base cost in the new company is therefore market value. 
  • This is an all or nothing relief; you must transfer all assets (including goodwill and land and buildings but cash may be excluded) to the new company.
  • The relief is given automatically; you can elect not to apply it if you want to. Alternatively, if you do not transfer all the assets of the business it will not apply anyway.
  • See Incorporation of partnership: step by step for how to deal with a partnership incorporation.
  • If you receive part of the consideration for the transfer in cash, the amount of the gain you can rollover is reduced proportionately.
  • S162 states only that there must be a business which is a going concern.
  • Do not forget to consider the stamp duty land tax (SDLT) implications of transferring property to a company. See Buy to let: SDLT on partnership incorporation for when relief from SDLT may be due on incorporation.

Tax tip: although s162 relief operates to hold over the entire gain on the disposal of the business, it may be simpler to claim partial Entrepreneurs Relief (ER)  or s165 gift relief . There are some restrictions here however, especially for ER; see Entrepreneurs Relief and CGT reliefs: disposal of a business or its assets.

Links to our useful guides:

CGT reliefs: disposal of a business or its assets
An outline of the main Capital Gains Tax (CGT) reliefs which may apply when an individual or company replaces or disposes of a business asset, or a business, or shares in a company.

Incorporating an existing business
This guide explores the main issues when a sole trader's business is incorporated into a company.

Buy to let: incorporation
What reliefs can I claim if I incorporate my property business? What claims and elections do I need to make? What are the VAT and SDLT implications?

Buy to let: SDLT on partnership incorporation
What are the SDLT implications of incorporating my property partnership? Are there any reliefs available?

Property Letting, CGT and IHT issues
This note concerns unincorporated businesses which consist of ordinary property letting (furnished or unfurnished). It also looks at Furnished Holiday letting: this activity is treated differently in most aspects because it is considered to be a trade, rather than an investment activity.

 

 

 


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