Incorporation Relief

Everything you need to know about Incorporation Relief and whether it applies to you

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

What is Incorporation Relief?

Incorporation Relief is a form of tax relief, where you might be able to delay paying any Capital Gains Tax owed if you transfer your business to another company in return for shares in that company. If you claim this tax relief, you won’t need to pay any Capital Gains Tax until you sell or dispose of those shares.

Who is eligible for Incorporation Relief?

HMRC have set the following conditions for Incorporation Relief and you must meet both conditions to be able to claim this tax relief:

  • You must be a sole trader or in a business partnership. It isn’t applicable to limited companies or any other kind of business set up.

  • You must transfer the whole business and all its assets, except any cash, in return for shares in the company.

Unfortunately, if you only meet one of the conditions, you can’t claim this tax relief.

How do you claim Incorporation Relief?

This is an easy one! You don’t have to claim it. It will be given to you automatically if you meet the above conditions. However, you will still need to work out your Capital Gains Tax liability and to do that, you deduct the gain (profit) you made when selling the business from the market value of the shares you received.

For example, you transfer your business to a company for £100,000 worth of shares and make a profit of £60,000. When you sell those shares later, you will be liable for Capital Gains Tax and your gain (profit) will be £40,000 (£100,000 minus the £60,000 profit you made).

What happens if you get cash as well as shares?

Sometimes when you transfer a business, you don’t just get payment in the form of shares but also a cash amount as well. The cash part isn’t eligible for Incorporation Relief because you only get this tax relief on the proportion of the business that you exchanged for shares – the cash is treated normally under Capital Gains Tax rules.

We know how complex this can be and that is why our team of experts are always on hand to make sure that you don’t need to worry about your tax returns. Call our team of tax preparation experts on 0330 122 9972 and we can cut out the complexity of capital gains.

How can DSR Tax Claims help?

We know that claiming your full tax relief can be a complicated affair, even with our helpful guide to tell you everything you might need to know. It’s all very well reading about it and knowing what HMRC’s stand on it is – but how do you apply that to your own circumstances? It can seem like an absolute minefield but help is always available and you don’t need to battle through this alone. Our team of experts at DSR Tax Claims are always on hand to help our client and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

This page was last updated on 24/10/2018.

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