CG65840 - Effect of disincorporation relief: examples

Any actual consideration given for the qualifying assets was ignored for the purposes of disincorporation relief.

Disincorporation relief did not reduce the tax liability of the shareholder on the business transfer.

Example 1
Example 2
Example 3

Example 1

Mrs A owned shares in A Ltd for 5 years. Its qualifying assets consisted of land worth £50,000 with a base cost of £20,000 and pre-2002 goodwill worth £25,000 with a base cost of £nil.

Mrs A transferred the business of A Ltd to herself and a joint claim for disincorporation relief was made.

Land

Consideration (TCGA92/S162B(2)) £20,000 cost in A Ltd
Less cost £(20,000)  
Gain £nil  

Goodwill

Consideration (TCGA92/S162B(2)) £nil cost in A Ltd
Less cost £(nil)  
Gain £nil  

In the hands of Mrs A, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land - £20,000
  • Goodwill - £nil

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Example 2

Mr B owned shares in B Ltd for 5 years. Its qualifying assets consisted of land worth £12,000 with a base cost of £20,000 and pre-2002 goodwill worth £5,000 with a base cost of £3,000.

Mr B transferred the business of B Ltd to himself and made a claim for disincorporation relief.

In the tax computation of B Ltd the gain on each asset was calculated as follows:

Land

Consideration (TCGA92/S162B(2)) £12,000 market value (less than cost in B Ltd)
Less cost £(20,000)  
Gain/(Loss) £(8,000)  

Goodwill

Consideration (TCGA92/S162B(2)) £3,000 cost in B Ltd
Less cost £(3,000)  
Gain/(Loss) £nil  

In the hands of Mr B, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land - £12,000
  • Goodwill - £3,000

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Example 3

Mr C and Mrs D owned shares in CD Ltd for 5 years, Mr C owning 40% and Mrs D owning 60%. Its qualifying assets consisted of land worth £50,000 with a base cost of £20,000 and pre-2002 goodwill worth £5,000 with a base cost of £3,000.

Mr C and Mrs D transferred the business of CD Ltd to a partnership of which they were the only members, in the same proportion, and made a claim for disincorporation relief.

In the tax computation of CD Ltd the gain on each asset was calculated as follows:

Land

Consideration (TCGA92/S162B(2)) £20,000 cost in CD Ltd
Less cost £(20,000)  
Gain £nil  

Goodwill

Consideration (TCGA92/S162B(2)) £3,000 cost in CD Ltd
Less cost £(3,000)  
Gain/(Loss) £nil  

In the hands of Mr C, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land (40% of £20,000 total) - £8,000
  • Goodwill (40% of £3,000 total) - £1,200

In the hands of Mrs D, the base costs of the assets for calculation of a capital gain on any future disposal are:

  • Land (60% of £20,000 total) - £12,000
  • Goodwill (60% of £3,000 total) - £1,800