Incorporation Relief
You may be able to delay paying Capital Gains Tax if you transfer your business to a company in return for shares.
Incorporation Relief means you will not pay any tax until you sell (or 鈥�dispose of鈥�) the shares.
Eligibility
To qualify for Incorporation Relief, you must:
- be a sole trader or in a business partnership
- transfer the business and all its assets (except cash) in return for shares in the company
How to claim
You do not have to claim Incorporation Relief - you鈥檒l get it automatically if you鈥檙e eligible.
To work out the amount you need to pay Capital Gains Tax on, deduct the gain you made when selling your business from the market value of the shares you received.
Example
You transfer your business in return for shares worth 拢100,000. You make a profit of 拢60,000. You later sell the shares and need to work out the gain - their cost for your Capital Gains Tax calculations is 拢40,000 (拢100,000 - 拢60,000).
If you get cash as well as shares
You might receive cash and shares when you transfer your business.
You only get Incorporation Relief on the proportion of the business you exchange for shares - you鈥檒l have to pay Capital Gains Tax on the cash.
Example
Your business is valued at 拢100,000 when you transfer it, and you receive 80% in shares (拢80,000) and 20% in cash (拢20,000). You made a gain of 拢50,000. You can postpone 80% of the gain (拢40,000) until you sell the shares. You need to pay Capital Gains Tax on 20% of the gain (拢10,000) in your next tax return.聽
If you do not want to claim Incorporation Relief
You can choose not to have Incorporation Relief. Contact HM Revenue and Customs (HMRC) if you need advice, or get help from an accountant or tax adviser.