The end of the road for disincorporation relief?

If you’re running a small business, but no longer wish to trade through a limited company structure, you need to go through a process known as ‘disincorporation’. Perhaps you’ve decided, for example, that you would prefer to operate as a partnership or sole trader.

Disincorporation relief was introduced in 2013, following much work by the Office of Tax Simplification (OTS), 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 itself applies to disincorporations taking place before 31 March 2018, after which it is set to expire.

There are a number of conditions which must be met in order for the relief to apply, including:

  • the business being transferred as a going concern;
  • the business being 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 not exceeding £100,000;
  • the company transferring its business to some or all shareholders who have held their shares for a minimum of 12 months;
  • the transfer being a ‘qualifying transfer’.

With the 2018 expiry date looming, the OTS have published a paper designed to stimulate discussion around the relief going forward.

The document confirms that their original consultation paper identified the relief would benefit c610,000 companies. As of March 2016, however, 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.

If you feel that you might be able to take advantage of disincorporation relief before its expiry, it’s important to talk to your professional advisers as soon as possible.