by Asim Abbas
12 November 2026 
Moving from sole trader to limited company? How Incorporation Relief delays Capital Gains Tax
Moving from sole trader to limited company? How Incorporation Relief delays Capital Gains Tax
When a sole trader or partnership moves into a limited company, the business is treated as being sold to the company. That can create a Capital Gains Tax bill, especially on goodwill or property. Incorporation Relief can delay that tax until you sell your shares.
- Incorporation Relief delays Capital Gains Tax when you transfer your business to a company for shares.
- You must transfer the whole business and all its assets, except cash.
- The deferred gain reduces the base cost of your shares.
- If you take part of the value as cash, part of the gain is taxed now.
- The relief is automatic, but you can choose not to have it.
The relief is automatic if you meet the conditions, but the conditions are strict, and taking some of the value as cash changes the result.
This guide explains how it works, with HMRC’s own examples.
What is Incorporation Relief?
According to GOV.UK, Incorporation Relief lets you delay Capital Gains Tax when you transfer your business to a company in exchange for shares. You do not pay tax on the gain until you sell those shares.
The conditions
- you must be a sole trader or in a business partnership
- you must transfer the business and all its assets, except cash
- you must receive shares in the company in return
The relief is automatic if you qualify, so you do not need to claim it. You can choose not to have it, which can sometimes make sense, for example to use your annual exempt amount or Business Asset Disposal Relief now. We will model both options for you.
How the gain is deferred
The deferred gain is deducted from the value of the shares you receive. That lower figure becomes your base cost when you eventually sell the shares, so the tax is postponed rather than cancelled.
Example: shares only
You transfer your business to a company for shares worth £100,000. The gain on the business is £60,000. Your shares are treated as costing £40,000 (£100,000 − £60,000), and no tax is due now.
See the tax difference
Compare sole trader and company tax with our free calculators.
Example: shares and cash
Your business is worth £100,000 and you take 80% in shares (£80,000) and 20% in cash (£20,000). The gain is £50,000. You can defer 80% of the gain (£40,000) until you sell the shares, but you pay Capital Gains Tax on the other 20% (£10,000) through your next tax return.
Fixed-fee accountancy support
Transparent monthly packages for sole traders, landlords and limited companies. Fixed fees agreed upfront, VAT included.
Get a fixed-fee quoteCall 0161 531 4179What usually creates the gain?
For most small businesses, the gain comes from goodwill, the value of your customers and reputation, or from property that has risen in value. Valuing goodwill properly is important, as HMRC can challenge it.
Other taxes to think about
Incorporation Relief deals only with Capital Gains Tax. Moving property into a company can also bring Stamp Duty Land Tax, and VAT needs checking too. Your final sole trader tax return and your new company’s first accounts both need care. Our limited company accountants and company formation service handle the whole move, and our start-up page compares sole trader and company tax.
If you are giving business assets to family rather than moving them into a company, see Gift Hold-Over Relief. For the full picture, read Capital Gains Tax for businesses.
What should I do next?
Goodwill, property, equipment and stock.
Especially of goodwill.
Cash triggers tax on part of the gain now.
We handle the company, the transfer and the tax.
Frequently Asked Questions
Do I need to claim Incorporation Relief?
No. It is automatic if you qualify, but you can choose not to have it.
Can I keep some assets outside the company?
To qualify, you must transfer the business and all its assets except cash.
What if I take cash from the company for the business?
The part of the gain matching the cash is taxed now; the part matching shares is deferred.
When do I pay the deferred tax?
When you sell or dispose of the shares, because their base cost has been reduced by the deferred gain.
Does it cover Stamp Duty Land Tax?
No. It only deals with Capital Gains Tax. Property transfers into a company need separate checks.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Stephen Reynold
I’m Stephen Reynold, an accountant at Wingate Accountants. I work with sole traders and small companies, turning tax rules into clear, practical next steps.
