Commentary

B9.118 Incorporation—outright sale

Business tax
Business tax | Commentary

B9.118 Incorporation—outright sale

Business tax | Commentary

B9.118 Incorporation—outright sale

Not everyone will want to defer the liability to capital gains tax that arises when they incorporate their business. The facility to disclaim incorporation relief (see B9.115) was introduced for just such a reason.

There is a clear attraction in converting the accumulated value of goodwill into an income source, subject only to a 10% or 20% charge to CGT. This can be achieved by selling the business to the newly incorporated company.

Example 1

Nathan and Peter have run their business for a number of years and decide to incorporate it during 2019/20. The business goodwill (see B9.120) has been valued at £200,000 and they have decided to sell it to their company, Presidents Ltd, at full market value. The goodwill has no base cost and both Nathan and Peter have other income that has fully utilised their basic rate income tax band. The CGT position is as follows:

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