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Introduction to this document

Disincorporation relief claim

Given repeated attacks on the tax benefits of running a business through a company, you might decide to disincorporate.

disincorporating - tax charges

If you decide to transfer your company business and assets to an unincorporated structure - a sole trade or partnership - corporation tax will be due on the value of assets transferred if they have increased in value since the company acquired them. This is because you are connected with the company, and the transfer is therefore deemed to take place at market value.

As an incentive for businesses to disincorporate, disincorporation relief was introduced in 2013. This can be used to treat the transfer of pre-2002 goodwill and land (qualifying assets) as taking place at the lower of cost and market value. There are separate elections that can be made for other items such as plant and machinery and trading stock which achieve a similar result.

Tip. Post-2002 goodwill is dealt with under the intangible fixed assets regime.

Conditions

To claim the relief, all of the business and its assets, or all of the assets except cash, have to be transferred to the shareholder(s). The business has to be transferred as a going concern, and all of the shareholders must be individuals who have held shares for the twelve months leading up to the transfer. Finally, the total value of the goodwill and land at the time of the transfer must not exceed £100,000.

Making a claim

In order to make a claim, you need to write to HMRC setting out the following details:

  • the name, address, Unique Taxpayer Reference (UTR) and company registration number of the company
  • the name, address, UTR (if available) and NI number of each shareholder to whom the business has been transferred
  • the transfer value of each qualifying asset for each shareholder to whom the business has been transferred
  • the date of the business transfer.

You also need to include a declaration that the business has been transferred with all its assets, or with all of its assets apart from cash. The claim needs to be made jointly by the company and any shareholder receiving assets.

We have set out all the prompts for this information in the claim letter.

Time limit

Claims must be made within two years of the transfer date but can’t be made if the company has already closed down (struck off or wound up). Once a valid claim to disincorporation relief is made it can’t be withdrawn.