Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

Call us on 0121 233 0090

  • OUR APPROACH
  • ABOUT YOUR BUSINESS
  • REQUEST A CALLBACK
  • BUDGET
  • CONTACT US
GDPR Guide Brexit Covid-19

Want to pay less tax?

Sign up to our monthly tax saving newsletter delivered directly to your inbox to find out how.

Incorporation of a business

Newsletter issue - January 2015

When a business incorporates and transfers its trade and assets to a company controlled by the seller, the assets must be transferred at open market value for tax purposes. The assets may include "goodwill" which is defined as the business reputation or customer relationships, including the value of continuing contracts.

The transfer of the assets may generate a taxable capital gain in the hands of the seller, as the assets will have appreciated in value during the time they were used or created by the first business.

Capital gains tax will arise on those gains, but there are various tax reliefs that can be used to postpone or reduce any tax payable. One of those reliefs is entrepreneurs' relief, which can reduce the tax payable to only 10%.

The use of entrepreneur' relief has been blocked for gains arising on the transfer of goodwill as part of an incorporation on or after 3 December 2014. Entrepreneurs' relief is still available to reduce tax from gains arising on other transferred assets, but not from the goodwill.

If you are thinking of incorporating your business, we should talk about which assets you want to transfer to the company, and which you want to leave in your own name. Transferring land and buildings will often carry an additional cost of stamp duty land tax. Planning the transaction well in advance is the best way to reduce any tax payable.