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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
, see all updates

Effect of disincorporation relief: overview

TCGA92/S162B & S162C

The effect of a claim to disincorporation relief is that no gain arises on the disposal by the company of the qualifying assets. This is achieved by deeming the consideration for the disposal of the asset to be equal to the expenditure on it (or the market value, if lower).

That deemed consideration is then the deemed base cost of the asset in the hands of the shareholder(s) to whom it has been transferred.

Overall, the effect of disincorporation relief is to defer any capital gain until the time when the asset is disposed of by the shareholder(s).

If the market value of the asset is less than its cost in the company (i.e. if it is standing at a loss), the capital loss will arise in the company and the shareholder(s) will take on the asset at its market value.

Disincorporation relief applies only to company tax charges

It is important to note that disincorporation relief does not provide any relief for income or capital gains tax charges on the shareholders when the assets of the business are distributed to them CG65835, or for any other tax charges.

For the shareholders, the usual tax rules on distributions apply, see SAIM5000 and CG57800.