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bigduckontax
bigduckontax, Accountant
Category: Tax
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My client is a husband and wife partnership, and they wish

Customer Question

Hello. My client is a husband and wife partnership, and they wish to convert to a limited company owned by them. Will they have to have a formal valuation of the partnership and value the goodwill for transfer to the limited company, and will there be a Capital Gains Tax liability on the transfer, or can this be rolled over. Is there any ideal timing tax-wise to make the transfer?Thank you.
Submitted: 13 days ago.
Category: Tax
Expert:  Oleksandr-Mod replied 12 days ago.
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Customer: replied 12 days ago.
I am happy to wait, thanks.
Expert:  bigduckontax replied 11 days ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

No Capital Gains Tax (CGT) will be payable at this stage as Incorporation Relief (IR) is available. IR merely postpones liability until the shares are disposed of at some future indeterminate date.

I do hope that I have been able to set your mind at rest on this matter.

Customer: replied 11 days ago.
Thank you. Can the partnership forego Incorporation Relief and pay the CGT on an independent valuation, thereby reducing any future gain on disposal of the shares in the company. My thought is to take advantage of the current retirement 10% CGT rate, which may not be around when they ultimately sell the company.
Expert:  bigduckontax replied 11 days ago.

You could; remember that there is a non cumulative Annual Exempt Amount (AEA) of 11.3K to offset any gain if IR is not elected. The disposal of the shares at some future date would benefit from another tranche of AEA also.

CGT is charged at 10% or 20% or a combination of the two rates depending on the individuals' income including the gain in the year of disposal. In the longer term, if you are going out of the business altogether, you may be entitled to Entrepreneurs' Relief (ER) which limits CGT to a flat rate 10%.

Which way tax rates will go is a moot point with the current hung Parliament. The Tories were on a tax reduction regime, but such matters as removing the triple lock on State Pensions and making winter fuel allowance means tested may not be supported by the DUP and may already be dead ducks. The UK is already a tax haven within the EU with a corporate tax rate of 19%, but this may not be sustainable in the long term if cherished tax reductions elsewhere have to be ditched.

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