Disincorporation relief is designed to make it easier for anyone running a private limited company to transfer the business to a sole trader or partnership. The relief is most suited to those running a small business who would prefer to carry on business without the burden of running a limited company.
Disincorporation relief is effectively a form of roll-over or deferral relief that is available when a company changes from a private limited company to an unincorporated form. The company must transfer its business to some or all of its shareholders.
In effect, the qualifying assets (land and goodwill) are transferred below market value and the shareholders then accept the reduced transfer cost for all future disposals. The company also avoids a Corporation Tax charge on the disposal of the assets.
A transfer will be a ‘qualifying transfer’ for the purposes of disincorporation relief only if:
- The business is transferred as a going concern.
- The business is transferred together with either all the assets of the business or all the assets of the business apart from cash.
- The total market value of the qualifying assets at the time of the transfer does not exceed £100,000.
- The company must transfer its business to some or all of its shareholders.
- The transfer must be a ‘qualifying transfer’.
- The transfer occurs between 1 April 2013 and 31 March 2018.
Disincorporation relief was originally introduced for a fixed five-year period from April 2013. There were some expectations that the relief might be extended but the government confirmed as part of the autumn Budget announcements that the relief will end on 31 March 2018.
Please get in touch if you are thinking about reverting to self employed or a partnership.