On the incorporation of a sole trade or partnership to a company, the transfer of assets (e.g. land/property, goodwill) may give rise to a chargeable gain on which capital gains tax may be charged.
Where all the assets of the business are transferred to the company in exchange for shares, then Incorporation Relief may be available to reduce the capital gain to £nil.
The effect of the relief is to “roll-over” the gain on incorporation into the base cost of the shares, effectively deferring the gain until the shares are sold at a later date.
In some circumstances it may be beneficial for the taxpayer to sell the assets to the company in part for a loan and in part for shares, however this will in turn restrict Incorporation Relief available.
With this in mind, expert advice should be taken prior to incorporation to ensure that is structured in the most tax efficient manner.