From 6 April 2026, Incorporation Relief (TCGA 1992, s.162) requires a mandatory formal claim via Self-Assessment, ending its automatic application for business transfers. Taxpayers must submit tax computations, transaction details, and the business type in the tax year of transfer to defer Capital Gains Tax (CGT) on asset transfers.
Key Details on Formal Claim Process (Post-April 2026)
Requirement: The transferor (individual, partner, or trustee) must formally claim relief.
Submission: Claims are made within the Self-Assessment tax return for the year of transfer.
Information Needed: HMRC requires specific details, including tax computations and a description of the transferred business.
Impact of No Claim: If no claim is made, the transfer is treated as a market value disposal, potentially triggering immediate CGT.
Removal of Opt-Out: The ability to elect out of the relief (s.162A) will be repealed.
Current Rules (Pre-April 2026)
Relief is applied automatically if qualifying conditions are met (transferring a business as a going concern for shares).
It allows the deferral of gains into the cost of new shares.
Impact of the changes
According to the Govenment’s site, the exchequer impact is expected to generate £110 million in 2029/30 tax year and will increase each year onwards. This suggests HMRC will identify undeclared capital gains tax not included on self-assessment returns subject to investigation with potential penalties and late interest charges arising. Furthermore, it also suggests HMRC may reject some incorporation relief claims thereby triggering CGT issues for any businesses that transferred the going concern to a company.
Who will be affected
Micro businesses a.k.a ‘one man band’ entities often tend to start in business as sole trade for simplicity and ease. Once the business becomes more established, or the owner’s intention to progress the nature of the business into a formal corporate structure, the business owner then often decides a limited company is the best vehicle to operate the business for many reasons such as the limited liability company rules. These small businesses will need the right support and guidance through these key business changes.
Property investors may be impacted who hold one or a portfolio in their own names or in a partnership. Some investors may have a long term goal to incorporate the business, but perhaps keep the business unincorporated until the portfolio reaches a certain size. Again, these individuals will need the right support and guidance with the changes on incorporation rules.
Silver lining
The rules themselves haven’t changed, merely reporting requirements. Therefore, there is still the opportunity to use incorporation relief to your advantage if done properly. The key importance is placing increased scrutiny on the implementation and using the tax legislation correctly and in the spirit of the law. Therefore, it’s imperative such investors and business owners seek the right accounting and tax expertise to navigate the landscape without the worrying risk of getting it wrong with severe consequences.