If you transfer the goodwill of your sole trade or partnership to a close company and, immediately afterwards, you hold 5% or more of it on any of the personal company tests, section 169LA of the Taxation of Chargeable Gains Act 1992 takes the goodwill out of Business Asset Disposal Relief. The gain on goodwill is then taxed at the normal capital gains tax rates, 18% or 24% for 2026 to 2027. Relief survives only where you stay below every 5% threshold or the company’s shares are sold on to another company within 28 days.

What does section 169LA actually do?

Section 169LA says that, where it applies, the goodwill “is not one of the relevant business assets comprised in the qualifying business disposal”. HMRC’s Capital Gains Manual at CG64006 explains that the rule has applied to disposals on or after 3 December 2014 and that it means the relief will not be available on goodwill where a sole trader or partnership incorporates.

Only the goodwill is affected. HMRC helpsheet HS275 confirms that, even when the rule applies, gains on other assets in the disposal may still qualify for Business Asset Disposal Relief. Premises or other chargeable assets used in the business are tested under the normal conditions.

When does the restriction apply?

Under section 169LA(1), two conditions must both be met:

  1. as part of a qualifying business disposal, you dispose of goodwill directly or indirectly to a close company; and
  2. immediately after the disposal, you meet any of the personal company conditions in that company or any company in its group.

Section 169LA(1ZA) lists those conditions by reference to section 169S(3): 5% of the ordinary share capital, 5% of the voting rights, 5% of the profits available for distribution, 5% of the assets on a winding up, or 5% of the proceeds on a sale of the whole ordinary share capital. Meeting any one of them is enough. The profits and assets tests are read as two separate conditions.

You are treated as having the rights and interests of any “relevant connected person”. Section 169LA(8) defines that as a company connected with you or trustees connected with you, so shares held through your own holding company or a family trust count towards the 5%.

HS275 describes a close company as, broadly, one controlled by five or fewer participators; see close company rules for the full test. A company resident outside the UK is treated as close if it would be close were it UK resident (section 169LA(5)).

What exceptions are left?

Holding below 5% on every test

If you, together with any relevant connected person, stay below all five thresholds in the buyer and its group immediately after the transfer, the restriction does not bite.

Onward sale within 28 days

Section 169LA(1A) to (1C) switches the rule off where it applied only because of your shareholding, and within 28 days of the business disposal you and any relevant connected person sell all your shares in the company to another company. If that buyer is itself a close company, you and connected persons must hold less than 5% of its ordinary share capital and less than 5% of its voting rights, and the same for its group.

This fits a sale where the business is first moved into a company and the company is then bought. HMRC can extend the 28 days. CG64007 says an extension may be allowed where you had a firm intention to sell to a known purchaser within 28 days, were prevented by circumstances beyond your control, and acted as soon as you reasonably could. A change of mind, or a transfer made before any buyer was identified, will not normally be accepted.

Buyer that is not close

The rule applies only to a close company, so a sale of goodwill to a widely held company falls outside it.

The retiring partner exception in the original legislation was removed by Finance Act 2016 with effect for disposals on or after 3 December 2014, so it is relevant only to claims made before that Act. Section 169LA(6) and (7) also deny relief where arrangements have a main purpose of getting round the restriction.

What price should the company pay?

You and a company you control are connected persons under section 286(6), so section 18 treats the transfer as a bargain not at arm’s length and the disposal is taken at market value whatever is actually paid. See connected persons.

Goodwill sold to your own company is often paid for by crediting a director’s loan account, which you then draw on over time. That makes the valuation the point HMRC is most likely to examine. A figure that cannot be supported by the business’s profits, or that includes personal goodwill attached to you rather than to the business, is open to challenge. How the company records the goodwill is covered in goodwill on incorporation, and its corporation tax treatment is a separate question under the intangible fixed assets rules in Part 8 of the Corporation Tax Act 2009.

What are the alternatives?

  • Incorporation relief. If the whole business is transferred as a going concern for shares, section 162 can roll the gain into the base cost of the shares. For transfers on or after 6 April 2026 it must be claimed. See incorporation relief and opting out of incorporation relief.
  • Relief on the later share sale. Section 169I(7ZA) lets the period you owned the business count towards the two year personal company and officer tests when you sell shares issued in exchange for it. A gain rolled into those shares can therefore reach the relief when the shares are eventually sold.
  • Gift holdover. HS295 confirms a company can receive a business asset under the business asset gift relief, which can defer a gain where the transfer is at an undervalue. See gift holdover relief.

How much does the restriction cost?

Illustration only. Mia is a sole trader and a higher rate taxpayer. On 1 July 2026 she sells her goodwill, valued at £200,000 with no base cost, to a new company in which she holds all the shares. The price is credited to her loan account. She has no other gains.

Relief denied If relief were available
Gain £200,000 £200,000
Annual exempt amount 2026 to 2027 £3,000 £3,000
Taxable gain £197,000 £197,000
Rate 24% 18%
Tax £47,280 £35,460

Because she owns 100% of a close company immediately afterwards, section 169LA applies and the left hand column is her position. The relief rate and the basic rate of capital gains tax are both 18% in 2026 to 2027, so the restriction costs nothing on any part of a gain that falls in the basic rate band.

What mistakes do people make?

  • Testing only share capital. Voting rights, profits, assets and sale proceeds each count; any one at 5% is enough.
  • Ignoring indirect holdings. Shares held by a company or trustees connected with you are attributed to you.
  • Assuming the whole disposal is lost. Only the goodwill is excluded.
  • Relying on an extension without a buyer. CG64007 says difficulty finding a buyer after the transfer is not an acceptable reason.
  • Overvaluing goodwill. A large loan account credit based on an inflated valuation invites a challenge to the figure.

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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.