Section 162A of the Taxation of Chargeable Gains Act 1992 let someone who transferred a business to a company for shares elect to switch off incorporation relief, so that gains were taxed at the time of the transfer instead of being rolled into the shares. It applies only to transfers made before 6 April 2026. Finance Act 2026 repealed it and made incorporation relief something you must claim, so for later transfers simply not claiming has the same effect.

Is the section 162A election still available?

Only for older transfers. HMRC’s Capital Gains Manual at CG65730 says the election can be made where a business was transferred to a company on or after 6 April 2002 and before 6 April 2026. Section 39 of Finance Act 2026 added a claim requirement to section 162(1) and omitted section 162A, with effect for transfers made on or after 6 April 2026. CG65700 confirms that section 162A elections are no longer available for those transfers.

For a transfer before 6 April 2026, incorporation relief applied automatically whenever the conditions were met. The business had to be transferred as a going concern with all its assets, or all of them other than cash, wholly or partly in exchange for shares. Section 162A was the only way out.

Why would anyone give up a deferral?

Under section 162(3), the relief reduces the base cost of the new shares by the rolled over gain. Opting out leaves the shares with a full base cost, at the price of tax now. That trade can make sense in a few situations:

  • The gain is small. If the annual exempt amount or capital losses would cover it, opting out costs nothing and gives the shares a higher base cost for the future.
  • Rates are expected to rise. Paying tax at the rates in force at the transfer, rather than whatever applies when the shares are sold, can look attractive. The relief rate rose from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026, according to CG63955.
  • A quick sale of the shares is planned and the gain is better taxed at incorporation. This needs care, because of the interaction with Business Asset Disposal Relief described below.

How does the choice interact with Business Asset Disposal Relief?

Three rules decide the outcome.

  1. Goodwill is usually excluded at incorporation. Section 169LA removes goodwill from the relief where it is transferred to a close company and, immediately afterwards, you meet any of the 5% personal company tests in it. CG64006 states that this means the relief will not be available on goodwill where a sole trader or partnership incorporates. If you opt out, the goodwill gain is normally taxed at the ordinary rates. See selling goodwill to your own company.
  2. Rolled over gains can qualify later. If incorporation relief applies, the gain sits inside the share base cost. When you sell the shares, Business Asset Disposal Relief is tested on the share disposal as a whole.
  3. Ownership of the business counts. Section 169I(7ZA) treats the personal company and officer or employee conditions as met for any period before the transfer during which you owned the business. A sale of the shares soon after incorporation can therefore still meet the two year test.

Taken together, opting out typically means paying ordinary rates on goodwill now, while keeping the relief may let the same gain reach the relief rate on a later share sale, within the £1 million lifetime limit. For disposals in 2026 to 2027 the relief rate and the basic rate are both 18%, so the difference only shows on gains in the 24% band. See capital gains tax rates.

What is the deadline for the election?

Under section 162A(3), as described at CG65730, the normal deadline is the second anniversary of the 31 January following the tax year of the transfer. Section 162A(4) shortens it to the first anniversary if, before the end of the following tax year, you dispose of the shares received for the business or shares treated as the same asset. A transfer of the shares to your spouse or civil partner is ignored for this test, but a later sale by them to someone else counts as your disposal (section 162A(5)).

Tax year of transfer Normal deadline Deadline if shares sold by end of next tax year
2023 to 2024 31 January 2027 31 January 2026 (passed)
2024 to 2025 31 January 2028 31 January 2027
2025 to 2026 31 January 2029 31 January 2028

Where a business was carried on by more than one person, such as a partnership, section 162A(7) gives each person a separate right to elect, and an election covers only that person’s gains and shares.

What happens for transfers on or after 6 April 2026?

The default has flipped. Section 162(1)(b) now requires a claim, including the information HMRC requires, by the first anniversary of the 31 January following the tax year of the transfer. CG65735 gives the example of a transfer on 19 July 2026, where the claim is due by 31 January 2029.

CG65735 says the claim is normally made in or with the tax return, identifying the disposals covered and the total relief, and supported by details of the business, the company and its registration number, the shares issued and the computation. For digital returns the details go in an attachment; on paper, box 54 of the SA108 can be used. If UK residential property is transferred, the 60 day property return rules still apply.

So the outcome that once needed a section 162A election now follows from making no claim. The risk is the reverse of before: if you want the deferral, you must actively claim it.

What does the decision look like in numbers?

Illustration only. Two sole traders incorporated on 1 March 2026, in the 2025 to 2026 tax year, receiving only shares. Neither had other gains, and the annual exempt amount for that year was £3,000.

  • Ana had gains of £2,500 on the business assets. Without an election, her shares worth £60,000 would have a base cost of £57,500. With a section 162A election made by 31 January 2029, the gain is covered by the annual exempt amount and her base cost is the full £60,000.
  • Ben had a goodwill gain of £150,000 and owns all the shares. An election would bring the gain into charge for 2025 to 2026, with no relief on the goodwill because of section 169LA. Without an election the gain is rolled into his shares and may later qualify for relief if he sells them while the conditions are met.

Common mistakes

  • Trying to elect for a 2026 to 2027 transfer. The section no longer exists for those transfers; the decision is whether to claim.
  • Assuming relief is still automatic. For transfers from 6 April 2026, no claim means the gains are chargeable.
  • Missing the shortened deadline. Selling the shares by the end of the next tax year brings the election date forward by a year.
  • Taking assets out first. CG65710 says whether assets withdrawn before the transfer count as part of the whole assets of the business is a question of fact; holding back property can put the relief itself in doubt.
  • Forgetting the goodwill restriction. Opting out in the hope of claiming the relief rate on goodwill rarely works when you own the 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.