Transferring a business to a limited company - introduction
When an individual transfers a business as a going concern to a company in exchange for shares, and the conditions of TCGA 1992, s. 162 are met, the whole or part of the gains will be postponed and will only become chargeable when the shares are disposed of.
The conditions of TCGA 1992, s. 162 are that:
- the transferor is not a company;
- the business is transferred as a going concern, together with all the assets of the business, or all the assets except cash; and
- the consideration for the transfer is satisfied wholly or partly by an issue of shares to the transferor by the transferee company.
The relief, which is sometimes referred to as 'incorporation relief', is given automatically (subject to an election for it not to apply). It works by rolling the gains over against the cost of the shares.
The relief is not available to companies but it is available to partners.
A relief similar to that given by s. 162 is provided by TCGA 1992, s. 140 for a company resident in the UK which carries on a trade outside the UK and transfers that trade to a non-resident company.
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