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Capital gains tax implications of incorporation

Produced by Tolley in association with
Owner-Managed Businesses
Guidance

Capital gains tax implications of incorporation

Produced by Tolley in association with
Owner-Managed Businesses
Guidance
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The Incorporation ― introduction and procedure guidance note summarises various tax implications of incorporating a business. This note provides further details of the capital gains tax aspects.

The transfer of business assets by an individual to a company controlled by them is a disposal for capital gains tax purposes. The disposal is deemed to take place at market value because the sole trader and the company are ‘connected persons’. The sole trader will therefore have a capital gain on the chargeable assets at the point of incorporation. The chargeable assets will usually be land and buildings, and possibly goodwill. It is unlikely that gains will arise on other assets such as plant and machinery as these will either be standing at a loss (for which relief is given via the capital allowances computation) or at a gain, which will be exempt under the chattels rules.

The CGT liability arising on the disposals can be deferred by claiming one of two possible CGT reliefs:

  1. •

    incorporation relief (otherwise known as roll-over relief on the transfer

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Julie Butler
Julie Butler

Managing Partner at Butler & Co Chartered Accountants & Registered Auditors 


Julie Butler FCA is the founding director of Butler & Co Chartered Accountants, a firm that specialises in agricultural and land matters. Julie has lectured extensively on proactive tax planning for farmers and landowners, with an emphasis on diversification and development.Julie and her team provide tax consultancy services direct to the farming and equine industry and to other accountants, land agents and solicitors on farming diversification, bloodstock and all areas of the equine world.Julie's articles are published in the national accountancy and tax press and she is the author of the successful books Tax Planning for Farm and Land Diversification and Equine Tax Planning as well as being co-author of Stanley: Taxation of Farmers and Landowners with Malcolm Gunn. Julie is also editor of Farm Tax Brief and contributes to Tolley's Tax Planning.Julie is an authorised individual licensed by the ICAEW to carry out the reserved legal activity of non-contentious probate in England and Wales.

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