What is Capital Gains Tax incorporation relief?

If you own a business as a sole trader or in a partnership, a Capital Gain will arise if your business is transferred into a company structure. The gain will be assessed by reference to the market value of the business assets, including goodwill, at the date of transfer. This could give rise to a chargeable gain based on the difference between the market value of the assets and their original cost.

The incorporation of the business will be completed so that incorporation relief can be claimed. The claim for incorporation relief should defer any tax until you sell your shares in the business.

In order to qualify for incorporation relief, all your business assets other than cash must be transferred as a going concern, wholly or partly in exchange for shares in the new company.

It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of old assets.

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