CGT: Incorporation Relief (s.162): At a glance

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

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

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 in exchange for shares.

• 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 deferred as it 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. 
• You must transfer all assets, including goodwill and land and buildings (cash and liabilities 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.
• If you receive part of the consideration for the transfer in cash, the amount of the gain you can roll over is reduced proportionately.
  • See How to incorporate an existing business for an example of how this works in practice.
• S.162 states only that there must be a business that is a going concern.
  • See Incorporation: property business/buy to let for whether the relief can apply on the incorporation of a property business.
• There are Stamp Duty Land Tax (SDLT), Land and Buildings Transaction Tax (LBTT) or Land Transaction Tax (LTT) implications in transferring property to a company.
• Special rules for partnerships:
  • See Buy-to-let: SDLT on partnership incorporation for when relief from SDLT/LBTT/LTT may be due on incorporation.
  • See Incorporation of partnership: step-by-step for how to deal with a partnership 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
Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company?

Incorporating an existing business
How to transfer an existing sole trader's business by incorporation 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 Stamp Duty Land Tax (SDLT) implications of incorporating my property partnership? Are there any reliefs available? When do the anti-avoidance rules in s.75A-75C Finance Act 2003 apply to partnerships?

Property & letting, CGT and IHT issues
What Capital Gains Tax (CGT) and Inheritance Tax (IHT) issues arise with property businesses? What about Furnished Holiday Letting?