When you incorporate your existing business, it will involve transferring at least some of your assets (e.g. goodwill) from your sole trade or partnership into your new company. You need to be careful as the transfer of goodwill may create a significant capital gain. If the business is transferred in exchange for shares in the company, it is possible to defer the gain until any later sale of the company.
Changes to relief for goodwill
Generally, individuals were prevented from claiming Entrepreneurs’ Relief (ER), where goodwill was sold to the company for cash or debt on or after 3 December 2014. So, capital gains tax arises on the gain made. The exception is that a claim to ER is allowed for partners in a firm who do not hold or acquire any stake in the successor company.
New legislation to be introduced in Finance Bill 2016 will revise the restriction on the claim for ER on goodwill on incorporation. Where the individual claiming relief holds less than 5% of the shares and the voting power of the acquiring company, ER can be claimed in respect of goodwill.
Also, if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner. Then relief will also be due where an individual hold 5% or more of the shares or voting power.
These changes will be backdated to disposals on or after 3 December 2014.
Stamp Duty Land Tax (SDLT)
You need to consider SDLT charges when assets are transferred to a company. Goodwill and debtors do not give rise to a SDLT charge, but land and buildings may do so.
When ceasing a business in an unincorporated form, you need to consider various issues including ‘overlap relief’.
If your business is in Bromley, Kent and London areas, please contact us at Adiva Accountant in Bromley about the goodwill relief, overlap relief and other reliefs available.