Incorporation relief and CGT

Question:

I have an LLP converting to ltd company status in the next few months. It is a very straightforward transition in that the whole of the business is being transferred as a going concern, the consideration will be entirely for shares in the new company and there is no land or buildings involved. Three questions.

1. Do you need to make a formal election for Incorporation Relief with HMRC or does the CT41G form suffice?

2. Net assets of the business will be in the region of £100k at date of transfer. What opportunity exists to transfer some of this to Directors loan account?

3. Are there any stamp duty implications?

Answer:

1. Do you need to make a formal election for Incorporation Relief with HMRC or does the CT41G form suffice?

Incorporation relief applies automatically where the conditions are met. You can though make an election for this not to apply to the transfer.

2. Net assets of the business will be in the region of £100k at date of transfer. What opportunity exists to transfer some of this to Directors loan account?

You'd need to structure the transfer differently to set up the loan account.

Ie you'd need to set up the company first and sell the assets for partial consideration. By ensuring that the conditions of S162 weren't met there would be no automatic incorporation relief and gift relief should apply to the element of the transfer without any consideration. The actual proceeds/consideration could be left outstanding on a loan account.

If Entrepreneurs Relief was due the actual consideration should be restricted to around £18K per partner to ensure that there gain after Entrepreneurs Relief was covered by the annual exemption.

3. Are there any stamp duty implications?

There shouldn't be if there's no land & buildings. Goodwill & debtors can be transferred free of stamp duty.