When a sole trader moves the business into a company, gains on goodwill and premises can be deferred either by incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 or by gift holdover relief under section 165. Section 162 needs the whole business, with all its assets other than cash, to go in for shares, and pushes the gain into the cost of those shares. Section 165 lets you choose which business assets to transfer and pushes the gain into the company’s cost of each asset, but needs a joint claim with the company.

How does each relief defer the gain?

Moving assets into your own company is a disposal at market value, because you and a company you control are normally connected persons (CG65740). Without a relief, gains on goodwill and property are taxable for the year of transfer.

  • Incorporation relief (section 162). The net gains on the assets transferred are calculated and added together. The part that relates to consideration taken in shares is deducted from the base cost of the new shares (section 162(2) to (4)). Tax is deferred until you dispose of the shares.
  • Gift holdover relief (section 165). Where you dispose of a business asset otherwise than at arm’s length, your gain and the company’s acquisition cost are both reduced by the held over gain (section 165(4)). Tax is deferred until the company disposes of the asset, and it is then the company’s gain.

HMRC’s Capital Gains Manual at CG66880 notes that a common use of section 165 is as an alternative to incorporation relief where an individual transfers sole trade assets to a company that will carry on the trade.

What does incorporation relief require?

Section 162(1) and CG65710 set three conditions:

  1. the business is transferred as a going concern;
  2. the whole of its assets are transferred, or all of them other than cash; and
  3. the transfer is wholly or partly in exchange for shares issued by the company to the person transferring the business.

“Whole assets” includes goodwill that has never been on the balance sheet (CG65710). If you want to keep the trading premises in your own name and let them to the company, section 162 is not available.

Where part of the consideration is not shares, only the share fraction of the gain is deferred. The deduction is the aggregate gain multiplied by A/B, where A is the cost of the new shares and B is the value of all the consideration received (section 162(4)). A credit to a director’s loan account counts as non share consideration and restricts the relief (CG65720). By Extra Statutory Concession D32, business liabilities taken over by the company are not treated as consideration, but personal liabilities, including the tax on the business, are (CG65745). The deduction cannot exceed the cost of the shares (section 162(4)).

For a partnership or LLP, relief is computed separately for each partner, and it is not available when the business is transferred into an existing corporate member (CG65700).

What changed for transfers from 6 April 2026?

Section 39 of the Finance Act 2026 changed incorporation relief for transfers of a business on or after 6 April 2026:

  • the relief now has to be claimed, with the information HMRC requires, on or before the first anniversary of the 31 January following the tax year of the transfer (new section 162(1)(b)); and
  • section 162A, which allowed you to elect for the relief not to apply, has been omitted.

Before that date the relief was automatic. HMRC’s example at CG65735: a hairdresser transferring his business on 19 July 2026 has until 31 January 2029 to claim. The claim should state the business activity, the company name and registration number, the number, type and issue date of the shares, the values of chargeable and non chargeable assets, any non share consideration and the relief claimed. On a paper return, box 54 of the SA108 can be used. HMRC’s policy paper says the purpose is to improve its data and target compliance work.

If a gain on UK residential property needs a 60 day return, for example because relief is only partial, CG65735 says the section 162 claim details should go with that return as well as the main tax return.

When does gift holdover relief fit better?

Section 165 relief is available on a gift of an asset used in a trade, profession or vocation carried on by the transferor or their personal company (section 165(2)). The asset does not have to be one of a set; you choose what to transfer. Key features:

  • Selective transfer. You can transfer goodwill and fixed assets but keep the premises personally.
  • Some payment allowed. If the company pays you something, only the amount by which the actual consideration exceeds your allowable costs is taxed now (section 165(7)). Selling an asset for no more than its original cost, and leaving the price on loan account, defers the whole gain while giving you a balance you can draw later. A loan account credit under section 162 would instead restrict relief.
  • Joint claim. The claim must be made by you and the company (section 165(1)(b)) on the form that accompanies helpsheet HS295, within four years of the end of the tax year of the gift (CG66889).
  • All or nothing on each asset. HMRC will not accept a claim that limits the held over gain to a chosen figure, for example to use your annual exempt amount (CG66889).

Section 165 cannot be used to transfer shares to a company (section 165(3)(ba)), which is not usually an issue for a sole trader.

How do the two reliefs compare?

Point Incorporation relief (s162) Gift holdover relief (s165)
Assets that must go in The whole business, all assets other than cash Any business assets you choose
Consideration Wholly or partly shares; non share part taxed now Nil or undervalue; excess over cost taxed now
Where the gain goes Reduces your base cost in the shares Reduces the company’s base cost in the asset
Who is taxed later You, when you sell the shares The company, when it sells the asset
Who claims You alone You and the company jointly
Claim deadline First anniversary of 31 January after the tax year (transfers from 6 April 2026) Four years after the end of the tax year

What does the choice look like with numbers?

Illustration only. Priya incorporates her consultancy in 2026 to 2027. Her goodwill is worth £300,000 and cost nothing. Her office is worth £250,000 and cost £150,000. There are no other chargeable assets and no liabilities.

Route 1: incorporation relief

She must transfer both the goodwill and the office. She takes £490,000 in shares and £60,000 on loan account. Total gains are £400,000. The deferred amount is £400,000 × £490,000 / £550,000 = £356,364. The remaining £43,636 is chargeable now, and her shares have a base cost of £490,000 less £356,364, which is £133,636. She must claim by 31 January 2029.

Route 2: gift holdover relief

She keeps the office and lets it to the company. She sells the goodwill to the company for £60,000, credited to her loan account. Because the goodwill cost nothing, the whole £60,000 is excess consideration and is chargeable now. The other £240,000 is held over and reduces the company’s cost of the goodwill. If she had taken nothing, the whole £300,000 would have been held over. She and the company sign the HS295 claim form.

How the company is taxed on the goodwill it acquires is a separate question; see our guide to goodwill on incorporation.

What are the traps?

  • Keeping back one asset. Leaving a property or vehicle outside the company can mean section 162 fails because the whole assets did not go in. HMRC says at CG65710 that whether assets withdrawn before the transfer count is a question of fact.
  • Missing the new claim deadline. For transfers from 6 April 2026, if no claim is made in time there is no incorporation relief.
  • Using the loan account under section 162. Each pound credited is non share consideration.
  • Doubling the exposure under section 165. The company holds the asset at a reduced cost, while your shares may have a low base cost too. If you later sell the shares, the value that came from the gifted asset may be taxed in your hands as well as the company’s.
  • Property taxes. Moving a property into a company has other consequences, covered in our guide to incorporating a property portfolio.

For the full rules on each relief see incorporation relief and gift holdover relief, and for the practical steps see how to incorporate a company.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.