CG65730 - Reliefs: Incorporation relief: Section 162A election for s incorporation relief to not apply (transfers before 6 April 2026)
Top of page
All statutory references in this page are to the Taxation of Chargeable Gains Act 1992 unless otherwise specified.
Section 162A
For transfers of a business from 6 April 2026 onwards, section 162 relief requires a claim, see CG65735, but prior to 6 April 2026, relief under section 162 was automatic.
Where a business is transferred to a company on or after 6 April 2002 and before 6 April 2026 the person making the transfer can make an election under section 162A to prevent the relief from applying.
If a business was owned by more than one person immediately before it was transferred, for example a business carried on in partnership, section 162A (7) (a) provides each person has a separate entitlement to make an election. section 162A (7) (b) provides that such an election applies only to the gains arising to that person on the transfer of the assets of the business and to the shares issued to him or her in exchange.
Time limit
Section 162A (3) provides the time limit for the election will be the second anniversary of the 31st January next following the year of assessment in which the transfer took place except in situations where section 162A (4) applies, see below.
Example 1: time limit for election where no relevant onward disposal
A transfers his business together with the whole of its assets in exchange for an issue of shares in X Ltd on 1 October 2016. As the transfer occurred in the 2016/17 tax year, A can make an election under section 162A no later than 31 January 2020.
Section 162A (4) provides that if the transferor disposes of the shares issued in exchange for the business (or any shares or debentures which are treated under section 127 as the same asset as those shares) prior to the end of the year of assessment following the one in which the transfer took place, the time limit for the election will be the first anniversary of the 31st January next following the year of assessment in which the transfer took place.
Special rules apply where the shares were disposed of to the transferor's spouse or civil partner, see below.
Example 2: time limit where a relevant onward disposal occurs
A transfers his business together with all its assets to X Ltd in exchange for an issue of shares in X Ltd on 1 October 2016. A sells his entire shareholding in X Ltd on 1 March 2018.
As the transfer of the business occurred during the 2016/17 tax year and the disposal of the shares took place before the end of the following year of assessment, A can make an election under section 162A no later than 31 January 2019.
Section 162A (5)(a) provides that a disposal of shares (or any shares or debentures which are treated under section 127 as the same asset as those shares) by the transferor of the business to a spouse or civil partner to which section 58 (1) applies is disregarded for the purposes of section 162A (4). But, a subsequent disposal of the shares by the spouse or civil partner (other than a disposal back to the original transferor of the business) will be regarded as a disposal by the person who transferred the business to the company for the purposes of determining the relevant date, section 162A (5)(b).
Example 3: transfer between spouses or civil partners and relevant onward sale of shares
A transfers his business together with all of its assets in exchange for an issue of shares in X Ltd on 1 October 2017. A gives all of his shares to B, their spouse with whom they live on 1 March 2018. section 58 applies to treat the disposal to B as resulting in neither a gain nor a loss. B sells the shares in X Ltd to a third party on 31 March 2018.
A decides to make an election under section 162A to prevent relief under section 162 from applying in relation to the transfer of the business to the company.
For the purposes of determining the relevant date in relation to A, section 162A (5) applies so that the disposal of the shares by A to B is disregarded and the subsequent disposal of the shares by B to a third party is regarded as a disposal by A.
The transfer of the business by A occurred during the 2017/18 tax year and the disposal of the shares by B took place before the end of the following year of assessment. Therefore, A can make an election under section 162A in relation to the transfer of the business on 1 October 2017 no later than 31 January 2019.
Example 4: transfers between spouses or civil partners and no relevant onward sale of shares
C transfers their business together with all of its assets in exchange for an issue of shares in Y Ltd on 1 October 2016. C gives all of his shares to D, the civil partner with whom they live on 1 March 2018. section 58 applies to treat the disposal to D as resulting in neither a gain nor a loss. D continues to hold the shares after 5 April 2018.
C decides to make an election under section 162A to prevent relief under section 162 from applying in relation to the transfer of the business to the company.
For the purposes of determining the relevant date in relation to C, section 162A (5)(a) applies so that the disposal of the shares by C to D is disregarded. As D continues to hold the shares after the end of the year of assessment following the one in which the transfer of the business took place the relevant date for C will be 31 January 2020.