Incorporation Relief - Shares issued 2 months before business assets transferred?

mista3

A few months ago I set up a limited company in which I'm the only director and shareholder. A single share was issued to me at the point of incorporation.

If I now transfer business assets from my personal control over to the ltd, are the shares I issued previously enough to qualify me for Incorporation Relief?

I've had advice from one tax expert that this isn't necessary, but my solicitor has suggested otherwise and thinks I should issue more shares to myself. Given that this wouldn't change my overall 100% stake in the business I'm not sure if I should bother or not...

Thanks!

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To qualify for Incorporation Relief, you must:

• be a sole trader or in a business partnership
• transfer the business and all its assets (except cash) in return for shares in the company

mista3

(*I've had advice from one tax expert that the existing shares *are* sufficient to qualify for incorporation relief)

mista3

And the only guidance I've found so far is this, which suggests it's ok for shares to be issued after the transfer, but doesn't explicitly cover what happens if the shares were issued before the transfer:

HMRC also recognise that it may not always be possible for shares to be issued at the time the business is transferred to the company (for example, if the authorised share capital has to be increased first). There is no time limit for the issue of shares but HMRC would expect it to take place promptly after the reason for the delay had disappeared (CG 65720).

Jeremy535897

The law says (section 162(1) TCGA 1992):

"(1)This section shall apply for the purposes of this Act where a person who is not a company transfers to a company a business as a going concern, together with the whole assets of the business, or together with the whole of those assets other than cash, and the business is so transferred wholly or partly in exchange for shares issued by the company to the person transferring the business."

I don't see how an initial one share (presumably one £1 paid up share) subscribed for a few months ago could be said to be issued "in exchange" for the business, when there was no agreement at the time to transfer the business to the company. If the business is worth £50,000 for example, you would normally issue 50,000 £1 shares in exchange for it (and that may exceed the authorised share capital). You can issue shares at a premium, but you might have problems if the shares issued are not all to you as the current sole owner of the company (that would be the case if you are not the sole owner of the business).

You also refer to the transfer of "business assets". For incorporation relief to apply, you must transfer a business as a going concern, not just business assets.

If you have already had advice from a tax expert, why are you asking this forum?

mista3

Jeremy535897 said:

The law says (section 162(1) TCGA 1992):

If you have already had advice from a tax expert, why are you asking this forum?

Because a solicitor I run it past saw things differently. Do you have a problem with me asking questions here?

Jeremy535897

mista3 said:

Jeremy535897 said:

The law says (section 162(1) TCGA 1992):

If you have already had advice from a tax expert, why are you asking this forum?

Because a solicitor I run it past saw things differently. Do you have a problem with me asking questions here?

No, but if you have already taken professional advice, you should be more persuaded by it than by comments on a forum.

mista3

Yes this is very true.

Jeremy535897

The fact that you have raised the issue on this forum suggests that you doubt the advice you received. If you paid for it, you should discuss any concerns that you have with that adviser. Experts are not always right.