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  • Writer's pictureRob Dalzell

Incorporation Relief: A Smart Move for Business Owners

Incorporation Tax Relief

Are you a sole trader or part of a business partnership considering a transition to a company structure? Incorporation Relief might just be the tax-saving solution you've been looking for. This valuable relief allows you to postpone Capital Gains Tax payments when transferring your business to a company in exchange for shares.


Understanding Incorporation Relief

Incorporation Relief essentially grants you a temporary break from paying Capital Gains Tax until you decide to sell or dispose of the shares received in return for your business.

The key qualification criteria for this relief are straightforward:

1.       You must be a sole trader or part of a business partnership.

2.       The business, along with all its assets (excluding cash), must be transferred in exchange for shares in the acquiring company.


Automatic Relief, No Claim Needed

One of the standout features of Incorporation Relief is that it is granted automatically, sparing you the hassle of making a separate claim. The relief operates by reducing the base cost of the shares received by the value of the gain that you would have been taxed on for transferring the sole trader business.


How It Works – A Basic Example

Let's break it down with a hypothetical scenario. You decide to transfer your business to a company and, in return, receive shares valued at £20,000. The value of the assets you transferred was only £15,000 meaning you would normally have to pay capital gains tax on the £5,000 difference!

With incorporation relief you can choose to reduce the value of the shares by the same amount as the gain you would have been taxed on. This way you won’t have to pay any tax on that gain until you sell those shares in the future.


Benefits of Incorporation Relief

The primary advantage of Incorporation Relief is the deferral of taxable gains until the eventual sale of the shares. This mechanism provides business owners with greater flexibility and liquidity, allowing them to reinvest in their ventures without the immediate burden of Capital Gains Tax.



Incorporation Relief stands as a smart and tax-efficient strategy for business owners looking to transition their operations to a company structure. By understanding and utilizing this relief, individuals and partnerships can enjoy a smoother path to incorporation, unlocking the potential for continued growth and success in their business.

If you're considering such a transition, Incorporation Relief could be the key to preserving your hard-earned gains and fuelling the next chapter of your business journey.


If you find yourself wanting more information or have any questions, please don't hesitate to reach out. We welcome the opportunity to provide further insights and ensure you have the information you need. Feel free to contact us, and let's continue the conversation.

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