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The Incorporation ― introduction and procedure guidance note summarises various tax implications of incorporating a business. This note provides further details of the capital gains tax aspects.

The transfer of business assets by an individual to a company controlled by them is a disposal for capital gains tax purposes. The disposal is deemed to take place at market value because the sole trader and the company are ‘connected persons’. The sole trader will therefore have a capital gain on the chargeable assets at the point of incorporation. The chargeable assets will usually be land and buildings, and possibly goodwill. It is unlikely that gains will arise on other assets such as plant and machinery as these will either be standing at a loss (for which relief is given via the capital allowances computation) or at a gain, which will be exempt under the chattels rules.

The CGT liability arising on the disposals can be deferred by claiming one of two possible CGT reliefs:

1. •

   incorporation relief (otherwise known as roll-over relief on the transfer