Incorporation Relief Calculator 2025/26

Calculate the CGT deferred under s.162 TCGA 1992 when incorporating a sole trader or partnership into a limited company.

Calculate Incorporation Relief (s.162 TCGA 1992)

Eligible for incorporation relief?
Total gain on transfer
Total consideration
Shares proportion
Gain deferred into shares (no CGT now)
Immediate chargeable gain (on cash portion)
CGT payable now
New share base cost
Future CGT on deferred gain (if shares sold at same rate)

Based on s.162 TCGA 1992. Liabilities assumed are treated as cash consideration. If some assets are retained, relief is denied entirely. Seek professional advice — goodwill and SDLT implications may also apply.

Incorporation Relief Defers, Not Exempts

S.162 incorporation relief does not permanently save CGT — it defers it. The deferred gain is locked into the shares and will become taxable when the shares are sold. The tax efficiency comes from paying later (time value of money) or potentially at a lower rate via BADR (10%) at eventual sale.

The Three Conditions

Liabilities and the Cash Problem

Liabilities assumed by the company (business overdraft, creditors, HMRC liabilities) are treated as cash consideration received by the sole trader. If the total of actual cash plus assumed liabilities exceeds the cost of the assets being transferred, a chargeable gain arises on the excess and incorporation relief is restricted accordingly.

Goodwill — A Warning

Transferring goodwill to a related company (which most incorporations involve) has specific CT implications: the company cannot typically deduct amortisation of goodwill for CT purposes. This reduces one of the traditional benefits of incorporating goodwill. Specialist tax advice is essential when goodwill is a significant part of the business value.

Frequently Asked Questions

What is incorporation relief? +
Incorporation relief under s.162 TCGA 1992 defers the capital gain arising when a sole trader or partnership transfers their business to a limited company. Instead of paying CGT on the gain immediately, the gain is rolled into the base cost of the shares received, reducing it. The deferred gain becomes taxable only when the shares are eventually sold.
What are the conditions for incorporation relief? +
The three conditions for s.162 incorporation relief are: (1) the business must be transferred as a going concern; (2) all assets (except cash) must be transferred to the company; and (3) the consideration must be wholly or mainly in shares in the company. 'Wholly or mainly' means at least 80% of consideration by value must be shares.
What happens if some cash is received alongside shares? +
If some consideration is in cash, incorporation relief is restricted. The deferred gain = total gain × (shares value / total consideration). CGT is immediately payable on: total gain × (cash value / total consideration). The shares' base cost is reduced by the deferred gain.
How are the shares valued for incorporation relief? +
The shares received in exchange for the business are valued at the market value of the business assets transferred (minus liabilities assumed by the company). This becomes both the consideration for the business transfer and the initial base cost of the shares.
How does the deferred gain reduce the base cost of shares? +
The base cost of shares received = (shares consideration − deferred gain). For example, if the shares are worth £500,000 and the deferred gain is £200,000, the shares' base cost becomes £300,000. When the shares are eventually sold, the gain will include this deferred element.
What are the CGT rates on the eventual share sale? +
CGT rates for 2025/26 are 18% (basic rate taxpayer) and 24% (higher or additional rate taxpayer) for most assets. If the shares qualify for Business Asset Disposal Relief, the rate is 10% (for gains up to the £1m lifetime limit).
Can incorporation relief and BADR be combined? +
Incorporation relief defers the gain into the shares. If you later sell the shares and those shares qualify for BADR (personal company held for 2+ years), you could pay CGT at 10% on the total gain at that point. This combination — defer now via s.162, pay 10% later via BADR — can be very tax-efficient.
What if the business has liabilities assumed by the company? +
Liabilities assumed by the company (creditors, overdraft, mortgages) are treated as additional cash consideration received by the transferor. If the total of cash received plus liabilities assumed exceeds the base cost of the assets transferred, CGT is immediately chargeable on the excess.
Is goodwill eligible for incorporation relief? +
Goodwill is an asset that can be transferred on incorporation, and the gain on goodwill can be deferred via s.162. However, HMRC restricts the deductibility of amortisation of goodwill in the limited company if the goodwill relates to a business transferred by a related party. Tax advice is essential.
Must the transfer include ALL assets for s.162 to apply? +
Yes. S.162 requires all assets of the business (other than cash) to be transferred. If any non-cash assets are retained by the sole trader and not transferred to the company, the relief is denied entirely. HMRC is strict on this condition.
Can a partnership incorporate using s.162? +
Yes. Each partner computes their share of the gain on the business assets and can claim s.162 relief individually. All partners must satisfy the conditions — each partner must receive shares representing at least 80% (by value) of their share of the total consideration.
What is the difference between incorporation relief and holdover relief? +
Holdover relief (s.165 or s.260 TCGA 1992) shifts the gain to the transferee (the company), reducing its base cost. S.162 shifts it into the shares. The key difference is who holds the deferred gain — the individual (in their shares) or the company (in its reduced asset base cost).