Incorporation relief applies where a person, who is not a company, transfers a business to a company as a going concern, together with the whole assets of the business (or together with the whole of such assets other than cash) and the transfer is made wholly or partly in exchange for shares issued by the company. In such a case, a chargeable gain on disposal of the old assets does not arise, as there is deemed to be no disposal, but the cost of the new assets is that of the old assets. The legislative provisions are included in section 162 TCGA 1992.
Who can get it?
The relief applies on a transfer of a business to a company by a sole trader or a partnership, so any person who is trading as a sole trader or in partnership can get it on incorporation.
The transfer must be of a business as a going concern. This means that the business must continue without interruption. There are no other conditions.
How it operates
The relief operates by rolling over any gains on disposal of the business into the shares issued in exchange. Thus, if a sole trader’s total business assets are worth £500,000 and the business is incorporated, then, assuming these assets have a base cost of £150,000, £350,000 would amount to a capital gain. The value of the business (£500,000) less the capital gain (£350,000) would be treated as the acquisition cost for the shares in the newly formed company, i.e. £150,000.