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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Effect of disincorporation relief: examples

Any actual consideration given for the qualifying assets is ignored for the purposes of disincorporation relief.

Disincorporation relief does not reduce the tax liability of the shareholder on the business transfer.

Example 1

Mrs A has owned shares in A Ltd for 5 years. Its qualifying assets consist of land worth £50,000 with a base cost of £20,000 and pre-2002 goodwill worth £25,000 with a base cost of £nil.

Mrs A transfers the business of A Ltd to herself and they make a joint claim for disincorporation relief.

In the tax computation of A Ltd the gain on each asset is calculated as follows:

Land

Consideration (TCGA92/S162B(2)) £20,000 cost in A Ltd
     
Less cost £(20,000)  
Gain £nil  

Goodwill

Consideration (TCGA92/S162B(2)) £nil cost in A Ltd
     
Less cost £(nil)  
Gain £nil  

In the hands of Mrs A, the base costs of the assets for calculation of a capital gain on any future disposal:

  • Land - £20,000
  • Goodwill - £nil

Example 2

Mr B has owned shares in B Ltd for 5 years. Its qualifying assets consist of land worth £12,000 with a base cost of £20,000 and pre-2002 goodwill worth £5,000 with a base cost of £3,000.

Mr B transfers the business of B Ltd to himself and makes a claim for disincorporation relief.

In the tax computation of B Ltd the gain on each asset is calculated as follows:

Land

Consideration (TCGA92/S162B(2)) £12,000 market value (less than cost in B Ltd)
     
Less cost £(20,000)  
Gain/(Loss) £(8,000)  

Goodwill

Consideration (TCGA92/S162B(2)) £3,000 cost in B Ltd
     
Less cost £(3,000)  
Gain/(Loss) £nil  

In the hands of Mr B, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land - £12,000
  • Goodwill - £3,000

Example 3

Mr C and Mrs D have owned shares in CD Ltd for 5 years, Mr C owning 40% and Mrs D owning 60%. Its qualifying assets consist of land worth £50,000 with a base cost of £20,000 and pre-2002 goodwill worth £5,000 with a base cost of £3,000.

Mr C and Mrs D transfer the business of CD Ltd to a partnership of which they are the only members, in the same proportion, and make a claim for disincorporation relief.

In the tax computation of CD Ltd the gain on each asset is calculated as follows:

Land

Consideration (TCGA92/S162B(2)) £20,000 cost in CD Ltd
     
Less cost £(20,000)  
Gain £nil  

Goodwill

Consideration (TCGA92/S162B(2)) £3,000 cost in CD Ltd
     
Less cost £(3,000)  
Gain/(Loss) £nil  

In the hands of Mr C, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land (40% of £20,000 total) - £8,000
  • Goodwill (40% of £3,000 total) - £1,200

In the hands of Mrs D, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land (60% of £20,000 total) - £12,000
  • Goodwill (60% of £3,000 total) - £1,800