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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I Have a question about the transfer of business from a sole

Customer Question

I Have a question about the transfer of business from a sole trader to an incorporated company, where the sole proprietor becomes the only shareholder of the limited company. In particular when the business property is transferred into the company. Will there be a potential liability to CGT on such a transaction? I'm confused about what incorporation relief covers...
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Can you tell me what the nature of your business is please.
Customer: replied 3 years ago.

Hi there - it is a farm, and the asset is the farm land.


Expert:  TonyTax replied 3 years ago.


There is nothing to stop you putting all the business property into the company and claiming incorporation relief. The shares you receive in return will have a cost equal to the value of the business goodwill and the business assets but that will be reduced by the gain on the goodwill and the property when the shares are sold or the business is wound up and the assets disposed of.

If you sell the property to the company, you may be entitled to entrepreneurs' relief which if you qualify will reduce the CGT charge to a rate of 10%. As and when the company has cash recources, you can draw out the disposal proceeds tax free since the gain would already have been taxed.

If you gift the property to the company, you can claim holdover relief to defer the gain, the effect of which is to reduce its base cost for tax purposes by the deferred gain.

Take a look here for basic information on incorporation relief and here for a commentary of the more long term implications of business property ownership structures. There is information on business asset holdover relief here.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Hi there thanks very much for your comprehensive answer. Can I ask one more question - on the transfer to the limited company you have emphasised that this be done in exchange for share capital in the limited company. Is there a good reason why part of the corresponding credit in the company could not be to Director's Loan, rather than share capital?

Expert:  TonyTax replied 3 years ago.
None at all. See example 2 here. Where some cash or a credit on the directors loan account is received or a credit, there may be CGT to pay.