Johnno B
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Capital Gains tax on incorporation

Capital Gains tax on incorporation

I am about to incorporate my business which has a net asset value of £20,000 approx plus goodwill valued at £50,000. The goodwill originally cost £1,000. The business has been trading 10 years. The company is going to issue me with 1 share and the balance of the consideration for the business will be by way of a directors loan account of £60,000. I have been advised that there will be no capital gains tax liability on me personally as a result of this goodwill being sold to the new company. Is this correct?


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29th Jun 2012 11:34


it is not correct.

And if the total vaule of the business is £70k, why are you only receiving £60k?

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29th Jun 2012 12:42


If hold over is claimed.

Yes/No confused then consult an accountant!

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By blok
30th Jun 2012 22:56

Can't claim relief and receive consideration of dla.
But agree. See an accountant.

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02nd Jul 2012 12:10

Intro to incorporation relief

You are disposing of a chargeable asset (goodwill) to a connected party and therefore a disposal at market value is deemed to take place. The gain on the goodwill alone is £49,000 however you should ensure that the net assets do not contain any further chargeable assets before moving on to consider incorporation relief (for example land, non-wasting assets etc.)

Incorporation relief is available in full where a business is transfered to a company in exchange for shares. All assets of the business must be transferred (exect for cash) for the relief to be available. Incorporation relief is automatic and utilises the "rollover" mechanism by reducing the base cost of the shares received by the value of the gains on chargeable assets. The gain is therefore deferred until a later date when the shares are dipsosed of. With full incorporation relief there would be no capital gains tax payable for the tax year of the first disposal (2012/13).

There is a limit on the relief where part of the proceeds are received in cash. As I undertsand the facts you are to be paid £60,001 - £1 of share capital and £60,000 cash which is to be left outstanding as a directors' loan account owed to you by the new company. As cash proceeds exceed the gain before relief the full gain will be chargeable, after deduction of the annual exemption.

As mentioned by previous posters you appear to be due to receive proceeds of less than the value you place on your business. You should also take the advice of an accoutant before acting.

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