An area due to come up in the September 2022 Advanced Tax is incorporation relief.

This defers the capital gain when a sole trader transfers the business to a limited company.

Gains will only arise on chargeable assets such as land and buildings and goodwill.

Assets such as cars, chattels worth less than £6,000 and current assets (inventory, receivables, and cash) are exempt from CGT and will not create gains.

Unlike other CGT reliefs, incorporation relief automatically applies if 3 conditions are satisfied.

·       Transfer as a going concern

·       All assets transferred except cash

·       Consideration wholly or partly in shares.

Incorporation relief works in a similar way to rollover and gift relief. The gain arising is rolled over against the value of the shares to give base cost.

As a result, the gain is postposed until the shares in the company are sold.

If partial consideration for the company is in the form of cash, the gain relating to the cash element crystallises immediately on incorporation.

The benefit of taking consideration in cash, is that this offers the sole trader the opportunity to use up his annual exemption and utilise part of the £1 million business asset disposal relief lifetime allowance.

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