Disincorporation relief – Budget 20 March 2013

A relief for disincorporation will be introduced for five years from April 2013.

The relief will allow a company to transfer goodwill and an interest in land to its

shareholders so that no corporation tax charge arises on the company on the

transfer. The relief will be available to businesses with total qualifying assets not

exceeding £100,000.

Many small firms may see themselves trapped inside a corporate structure,

a leftover from the heady days of 0% and 10% corporation tax rates. Small

companies and their shareholders can choose to disincorporate and to transfer

the business and its assets as a going concern to one or more of the company’s

shareholders, to continue the business in an unincorporated form.

The measure will make it easier for the owners of a small incorporated business

todisincorporate by removing some of the tax charges that arise when assets

are transferred by the company to the shareholders who wish to continue the

business in an unincorporated form. The measure will allow the business the

flexibility to choose the most appropriate legal structure in which to operate,

which has been restricted by a number of tax charges and administrative issues

that might currently discourage disincorporation.

For disincorporations on and after 1 April 2013 but before 31 March 2018 a joint

claim needs to be made by the company and its shareholders to allow qualifying

business assets (goodwill and land and buildings used in the business) to transfer

at a reduced value for CT and capital gains tax purposes. The joint claim will allow

the asset to be transferred at the reduced value so that no CT will be payable by

the company on the transfer of the qualifying business assets.

Claims will be restricted to those businesses where the market value of the

classes of assets allowed for disincorporation relief does not exceed £100,000.

Joint claims must be made to HM Revenue & Customs (HMRC) within two years

of the date of the transfer of business assets.

Back to Main Page – Budget 20 March 2013

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