Transfer of a business to a company: example: relief restricted to cost of shares
A transfers his business together with all its assets to A Ltd in consideration for an issue of 100 shares in A Ltd. The only chargeable asset of the business is self-generated goodwill. The value of the business transferred is agreed as follows:
Market value at the date of transfer:
|Net value of business||24,000|
The gain arising on the disposal of goodwill is £50,000 as there are no allowable acquisition costs.
The whole of the gain of £50,000 on the transfer of goodwill is attributable to shares as there was no other consideration. However, the amount to be deducted from the cost of the shares cannot exceed their cost, £24,000. Therefore, the revised cost of the 100 shares in A Ltd is (£24,000 - £24,000) £nil.
The balance of the gain, (£50,000 - £24,000) £26,000, is chargeable in the tax year in which the transfer took place.