Background

Disincorporation Relief was introduced from 1 April 2013 and is a form of roll-over or deferral relief.

When a company ‘disincorporates’ there is a transfer of assets between the company and its shareholders.  As the parties are connected, the transfer is deemed to occur at market value for tax purposes and normally results in a Capital Gain.  Prior to the introduction of disincorporation relief this would result in a Corporation Tax charge being incurred.

Disincorporation relief enables small owner-managed companies to transfer qualifying assets so that no capital gain arises, and as a result no Corporation Tax charge is incurred.

The availability of Disincorporation Relief coincides with the introduction of other tax simplification measures for unincorporated businesses, such as the ‘Cash basis’ election and the flat rate expense allowances.

Conditions for Relief

A company and its shareholders can make a claim for Disincorporation Relief if:

  • the company transfers its business to some or all of its shareholders
  • the transfer is a ‘qualifying transfer’
  • the transfer occurs between 1 April 2013 and 31 March 2018
  • the transfer is to either a sole trader or individuals in partnership, but not to members of a limited liability partnership (LLP)

Qualifying Transfer

There are a number of conditions to be met, and each case should be considered in the light of the facts.  One of the key requirements, which will restrict the application of the relief, is that the total market value of ‘qualifying assets’ (land and goodwill) at the time of the transfer must be below £100,000.

If you would like more information on Disincorporation Relief please contact Paul Eaves on 0113 244 3502 or peaves@eavesandco.co.uk.

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