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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Transfer of a business to a company: conditions for relief

Relief under TCGA92/S162 is available where a person who is not a company transfers a business to a company in exchange for shares.

`Company’ is defined for CGT purposes in TCGA92/S288 as including “any body corporate or unincorporated association but does not include a partnership”. Relief is therefore not available where an unincorporated association transfers its business to a company.

A claim is not required because the relief is automatic but the person transferring the business can make an election under TCGA92/S162A to prevent relief under TCGA92/S162 from applying, see CG65730.

Conditions for relief

The following conditions must be satisfied:

  • the business, see CG65715, is transferred as a going concern,
  • the whole of the assets of the business (or the whole of the assets other than cash) are transferred to the company,
  • the consideration for the transfer is satisfied wholly or partly by an issue of shares in the company to the person transferring the business, see CG65720.

Meaning of `going concern’

The requirement that the business must be transferred as a going concern indicates that something more than a collection of assets must be transferred.

In the Australian case Reference Under Electricity Commission (Balmain Electric Light COPurchase) Act 1950 [1957] SR (NSW) 100 at page 131 Sugerman J said:

`To describe an undertaking as a `going concern’ imports no more than that, at the point of time to which the description applies, its doors are open for business; that it is then active and operating, and perhaps also that it has all the plant etc which is necessary to keep it in operation, as distinct from its being only an inert aggregation of plant.’

The business must be operating as a going concern at the time of transfer. This point was considered in CIR v Gordon (64TC173). In that case the Special Commissioner had considered whether at the time of transfer the business would continue as a going concern. The Court rejected this approach but added the limitation that a business could not be described as a going concern at the time of transfer if the transferor had taken steps before that date “to prevent the transferee company from carrying on the business without interruption as it wishes” after the transfer.

Meaning of ‘the whole assets of the business’

The transfer must include all of the assets of the business except for cash or sums held in a bank deposit or current account.

This means that any assets that are not shown on the balance sheet, for example, goodwill generated in the business without having been acquired, see CG68000+, must be included in the transfer.

It is a question of fact whether assets withdrawn from the balance sheet before the transfer of the business should be regarded as included within ‘the whole assets of the business’ for the purposes of satisfying this condition.