Disincorporation relief was introduced in 2013 following much work by the OTS (Office of Tax Simplification) and eliminates the charge to corporation tax that would otherwise be due when the assets of a company are transferred to the individuals. The relief applies to disincorporations taking place before 31 March 2018.
The relief is targeted at smaller companies that no longer wish to trade through a limited company structure, preferring to trade through an unincorporated structure such as a partnership or as a sole trader.
There are a number of conditions must be met in order for the relief to apply, including:
- the business is transferred as a going concern;
- the business is transferred with all its assets (there is an exception for cash);
- the total market value of the qualifying assets at the time of the transfer do not exceed £100,000;
- the company must transfer its business to some or all shareholders who have held their shares for a minimum of 12 months;
- the transfer must be a ‘qualifying transfer’.
In anticipation of its expiry the OTS have published a paper designed to stimulate discussion around the relief going forward.
In this paper the OTS confirm that whilst their original consultation paper identified that the relief would benefit c610,000 companies, as of March 2016 fewer than 50 claims had been made. One of the reasons given by the OTS for the low take-up of this relief is thought to be that the £100,000 limit is too low and there can also be Income Tax charges for the shareholders.
Please do not hesitate to contact us should you wish to discuss whether disincorporation relief would be of benefit to you before the relief expires.