The CIOT has sent a proactive submission to HMRC on uncertainties in relation to the application of ESC D32 on the incorporation of a business, where an individual transfers the whole of the assets and liabilities to a company for consideration consisting wholly of the issue of shares by the company, relying on incorporation relief under TCGA 1992 s 162. Extra-statutory Concession D32 has remained in force, notwithstanding the Wilkinson [2005] UKHL 30 decision.
Strictly, business liabilities taken over by the company represent additional consideration for the transfer, and incorporation relief is restricted – but ESC D32 allows those business liabilities to be ignored when quantifying consideration, as HMRC explain in their Capital Gains Manual at CG65745. The CIOT suggests that this guidance needs updating to reflect modern commercial practice by lenders to include:
examples of business liabilities for the purposes of ESC D32, clarifying whether business liabilities can include property mortgages where the property letting activities are sufficient to amount to a business for incorporation relief purposes; and
examples of scenarios where HMRC accepts that business liabilities have been ‘taken over’ by a company.
The CIOT has sent a proactive submission to HMRC on uncertainties in relation to the application of ESC D32 on the incorporation of a business, where an individual transfers the whole of the assets and liabilities to a company for consideration consisting wholly of the issue of shares by the company, relying on incorporation relief under TCGA 1992 s 162. Extra-statutory Concession D32 has remained in force, notwithstanding the Wilkinson [2005] UKHL 30 decision.
Strictly, business liabilities taken over by the company represent additional consideration for the transfer, and incorporation relief is restricted – but ESC D32 allows those business liabilities to be ignored when quantifying consideration, as HMRC explain in their Capital Gains Manual at CG65745. The CIOT suggests that this guidance needs updating to reflect modern commercial practice by lenders to include:
examples of business liabilities for the purposes of ESC D32, clarifying whether business liabilities can include property mortgages where the property letting activities are sufficient to amount to a business for incorporation relief purposes; and
examples of scenarios where HMRC accepts that business liabilities have been ‘taken over’ by a company.
