Incorporation Relief: a subtle change with important consequences

Historically, where a business was transferred to a company in exchange for shares and the statutory conditions were met, Incorporation Relief under s162 TCGA 1992 applied automatically. From 6 April 2026, this automatic treatment will end. The relief will still be available, but it must now be formally claimed in the transferor’s Self-Assessment return.

On the face of it, this may appear to be an administrative change. However, when viewed alongside HMRC’s recent challenge of aggressive planning arrangements involving property businesses and buy‑to‑let portfolios, it is reasonable to question whether this forms part of a broader HMRC project focusing on Incorporation Relief. Under the new claim‑based system, HMRC will have early visibility of:

• details of the incorporation;
• the structure of the transaction; and
• the values involved.

When combined with the company’s accounts and Corporation Tax returns, HMRC will have more than enough information to profile and risk‑assess cases at an early stage, increasing the likelihood of enquiries.

We would anticipate a notable rise in HMRC enquiries over the next few years specifically targeting Incorporation Relief.

Some of the common issues we encounter in incorporation cases include:

• insufficient records to demonstrate that the activity meets the “business” test established in Ramsay v HMRC;
• consideration being provided via a director’s loan account without being fully reflected in the capital gains computation; and
• insufficient evidence that a partnership existed before incorporation, meaning Stamp Duty Land Tax is payable on the property transfers.

Another key point is that Incorporation Relief only defers the gain. It does not eliminate other tax exposures that may arise within the post‑incorporation structure. Corporate ownership may still be appropriate, but it is important to consider wider tax implications before implementation.

If you are considering incorporation or advising clients who are, this is a good moment to review your approach. Taking advice at the planning stage will help ensure the relief is available, properly claimed, and defended if HMRC raises questions — something we expect to become more common following the changes.

Please contact us to discuss this or any other property-related tax issues.