CG65820 - Effect of disincorporation relief: overview

TCGA92/S162B & S162C

The effect of a claim to disincorporation relief was that no gain arose on the disposal by the company of the qualifying assets. This was achieved by deeming the consideration for the disposal of the asset to be equal to the expenditure on it (or the market value, if lower).

That deemed consideration is then the deemed base cost of the asset in the hands of the shareholder(s) to whom it has been transferred.

Overall, the effect of disincorporation relief was to defer any capital gain until the time when the asset is disposed of by the shareholder(s).

If the market value of the asset was less than its cost in the company (i.e. if it was standing at a loss), the capital loss arose in the company and the shareholder(s) instead took on the asset at its market value.

Disincorporation relief applies only to company tax charges

It is important to note that disincorporation relief did not provide any relief for income or capital gains tax charges on the shareholders when the assets of the business were distributed to them (see CG65835), or for any other tax charges.

For the shareholders, the usual tax rules on distributions apply, see SAIM5000 and CG57800.