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HMRC internal manual

Capital Gains Manual

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:

Goodwill 50,000
Non-chargeable assets 20,000
Cash 5,000
Less creditors 51,000
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.