Section 60: Disincorporation Relief: Making a Claim
Summary
1.Section 60 explains how claims to disincorporation relief are to be made. Disincorporation relief allows a company to transfer goodwill and interests in land to its shareholders so that no corporation tax charge arises to the company on the transfer.
Details of the Section
2.Section 3 provides that a claim to disincorporation relief must be made jointly by the company and the shareholders to whom the business is transferred (subsection (1)) within 2 years from the business transfer date (subsection (2)).
Background
3.In February 2012 the independent Office of Tax Simplification (OTS) published its final reports into small business tax. One of these reports identified a population of businesses operating as limited companies which would prefer to operate in unincorporated form and highlighted a number of tax charges and administrative issues that might currently discourage this.
4.At Budget 2012 the Government announced a consultation on the OTS proposals for a disincorporation relief. That consultation closed on 30 August 2012. The Government has considered all the responses to the consultation and will publish a summary of the responses on 11 December 2012.
5.Disincorporation relief responds to proposals made by the OTS, which recommended that a relief be introduced to remove the tax barriers that currently exist when business assets are transferred by a company to its shareholders who wish to continue the business as a going concern in an unincorporated form.
6.The current legislation requires a company to pay corporation tax under the Taxation of Chargeable Gains Act 1992 when chargeable gains arise on disposals of assets, and corporation tax under the intangible fixed assets rules at Part 8 of the Corporation Tax Act 2009 when credits arise from a realisation of goodwill, based on the market value of the asset at the time of the transfer.
7.Legislation will be introduced in the Finance Act with effect from 1 April 2013, to allow a company to transfer qualifying assets (land and goodwill used in the business) to shareholders as individuals who wish to continue the businesses in an unincorporated form. The relief will allow qualifying business assets to transfer at a reduced value for corporation tax.
8.Claims will be restricted to those businesses where the market value of the classes of qualifying assets does not exceed £100,000 and the relief will be available for a period of 5 years commencing from 1 April 2013 (subject to Royal Assent).
9.Joint claims must be made in writing to HMRC by the company and the shareholders who wish to continue the business within two years of the date of the transfer of qualifying assets. Other eligibility criteria will also apply. HMRC will publish guidance on what information will need to be included in the claim.
10.Disincorporation relief does not cover the tax charges that might arise to the shareholders when assets are distributed below market value in the course of a disincorporation.
