SolvedCG65840 | Effect of disincorporation relief: examples
From HM Revenue & Customs · Capital Gains Manual
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
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
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
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