This is a freeview 'At a glance' guide to Incorporation relief.

Gains from the disposal of business assets on incorporation can be deferred. What assets are included? How does the relief work? Subscribers see here 

At a glance

Incorporation (rollover) relief (s.162 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 (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 that 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 s.162 relief operates to hold over the entire gain on the disposal of the business, it may be simpler to claim partial Business Asset Disposal Relief (BADR) (Entrepreneurs Relief) or s.165 gift relief. There are some restrictions here, however, especially for BADR; see Business Asset Disposal relief (Entrepreneurs Relief) and CGT reliefs: disposal of a business or its assets.

Useful guides on this topic

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.

Incorporation: property business/buy to let
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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