Disincorporation relief

By Tolley
OMB_tax_img8

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Disincorporation relief
  • Benefits of relief
  • How to claim disincorporation relief
  • Conditions for disincorporation relief
  • Meaning of a ‘business’
  • Transfer business to shareholders
  • Qualifying business transfer
  • Transfer occurs on or after 1 April 2013 but before 1 April 2018
  • Planning points

Disincorporation relief came into effect for disincorporations taking place from 1 April 2013 to 31 March 2018. The relief was introduced by Finance Act 2013, ss 58–61.

Simon’s Taxes C3.410 (subscription sensitive)

At Autumn Budget 2017 the Government announced that it would not extend the availability of disincorporation relief beyond 31 March 2018. See the Autumn Budget 2017 ― owner-managed businesses overview news item.

OOTLAR , para 2.23

The decision to withdraw the relief follows a low take-up and a focus paper  from the Office of Tax Simplification (OTS). This means that there is now a limited window of opportunity for business owners who are considering disincorporation to take advantage of a potentially beneficial relief.

As noted by the OTS, many small businesses would like to disincorporate, mainly of one-person or family companies. These businesses may not need limited liability, whether for protection of the shareholders or to satisfy commercial requirements (such as conditions from customers or suppliers), and will probably have lower profits which reduce the potential for tax benefits of profit extraction. The tax benefits of incorporation have been reduced by changes to dividend taxation and also the impending reduction in the dividend allowance to £2,000 from April 2018. See the Salary v dividend guidance note.

Therefore, you should consider contacting such businesses as soon as possible to review whether their business structure is still suitable.

Benefits of relief

Disincorporation relief is a temporary relief that is available on qualifying disincorporations (see below) that take place on or before 31 March 2018. It is available only to smaller companies that have qualifying assets of no more than £100,000.

Qualifying assets are:

  • goodwill within the corporate intangibles regime
  • goodwill arising before 1 April 2002 which is

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