Many small firms may see themselves trapped inside a corporate structure, a hang-over from the heady days of 0% and 10% corporation tax rates. However, a new relief started on 1 April 2013 that could help you escape – Disincorporation Relief.
The Treasury estimate that 610,000 businesses will be eligible for this relief which will enable them to transfer a business and its assets as a going concern to one or more of the company’s shareholders, to continue the business in an unincorporated form.
The measure will make it easier for the owners of a small incorporated business to disincorporate by removing some of the tax charges that arise when assets are transferred by the company to the shareholders who wish to continue the business in an unincorporated form. The measure will allow the business the flexibility to choose the most appropriate legal structure in which to operate.
Until 31 March, a company paid Corporation Tax (CT) when chargeable gains arise on disposals of assets and on the credit which arises from a realisation of goodwill, based on the market value of the asset at the time of the transfer.
The relief is available for a limited period of 5 years, for disincorporations from 1 April 2013 to 31 March 2018.
How does it work?
The business assets which can be transferred are goodwill and land and buildings used in the business, but to qualify for the relief, these items may not exceed £100,000 in value.
The qualifying business assets are transferred at a reduced value for CT and capital gains tax (CGT) purposes. The joint claim allows the asset to be transferred at the reduced value so that no CT will be payable by the company on the transfer.
The shareholders agree to take on the asset at the reduced value, in reality the shareholders take on the gain, which will be charged on them when the asset is subsequently disposed of.
We will need to put in a joint claim for the company and the shareholders to secure this relief.
Is your business structure right for you?
There are always pros and cons to all business structures and we are always happy to discuss your needs as sole traders and partnerships looking to incorporate but also to review the changing needs within companies for differing structures. In addition to these structures we can advise on using a Limited Liability Partnerships (LLPs) structure.
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