My VIP Tax Team question of the week: Holdover Relief where Incorporation Relief is not available
My client Ringo owns 100% of the shares in Thomas Ltd, a train manufacturing company.
Ringo has also owned the commercial premises that Thomas Ltd trades from since May 2000. It was bought for £200k and is now worth £500k. There is no mortgage on the property, but Ringo charges rent for the use of the property.

Ringo now wishes to incorporate the premises into Thomas Ltd, in exchange for an issue of shares.
I know that incorporation relief requires a ‘business’ to exist.

Will incorporation relief be available in this situation, as a business is carried on from the trading premises, or would Ringo have to show that he is personally operating a property investment business regarding the premises?

Is there any alternative?

Section 162 TCGA 1992 (‘Incorporation Relief’)

In outline, Incorporation Relief is available where a business is transferred to a company, providing all of the assets of that business are transferred, and the consideration represents only an issue of new shares in the company.

This would enable the gains to be rolled over into the base cost of the new shares issued in the acquiring company.

In simple terms, this may look as follows using the outline numbers provided:

Ringo’s Disposal: £’000   Ringo Base Cost of the Shares: £’000
Proceeds (Market Value) 500 Market Value of Assets 500
Base cost (200) Less gain rolled over (300)
——– ——–
Gain 300 Net Base Cost of Shares 200
Incorporation Relief (300) =====
Chargeable Gain Nil  


However, as you have identified, Section 162 relief is only available to a business (note this does not have to be a trade).

In this case, the fact that Ringo’s company operates from the premises does not cause the property itself to be a business. Ringo himself is generating rental income from the property. However, establishing this as a business may require a significantly greater level of activity on the part of Ringo in order to establish that he is operating a property business.

The Ramsey case (Ramsey v HMRC [2013] UKUT0226 (TCC)) is commonly used as a reference when considering whether a ‘business’ exists. See HMRC’s views on this case and its effect on Section 162 relief at CG65715. In this case, it would appear very unlikely that Ringo will qualify for relief under Section 162.

Section 165 TCGA 1992 (‘Business Asset Gift Relief’)

Business Asset Gift Relief, or Holdover Relief may be a suitable alternative in this situation, as it does not require Ringo himself to be operating a business activity in relation to the property. Instead, this may be available as the asset is being used for the purposes of a trade carried on by Ringo’s personal company.

The holdover election must be entered into within 4 years from the end of the tax year of the gift and signed by both parties. The election can be made on the HMRC HS295 Claim Form.

The effect of the election for Ringo and Thomas Ltd is outlined below:

Ringo’s Disposal: £’000   Thomas Ltd Property Base Cost: £’000
Proceeds (Market Value) 500 Market Value 500
Base cost (200) Less gain held over (300)
——– ——–
Gain 300 Thomas Ltd Base Cost of property 200
Holdover Relief (300) =====
Ringo’s Chargeable Gain Nil  


One advantage of Section 165 holdover relief is that there is the opportunity for Ringo to generate some proceeds on the transfer (or create a directors’ loan account balance), free from capital gains tax.

Section 165(7) provides that, as long as any actual consideration paid by Thomas Ltd does not exceed the total of the qualifying acquisition and disposal costs available as a deduction for Ringo (in accordance with Section 38 TCGA 1992), there will be no restriction to the holdover claim.

This is illustrated below:

Ringo’s Disposal: £’000 £’000
Actual Proceeds 212
Deemed additional proceeds 288
Taxable Proceeds (Market Value) 500
Less: Base cost (200)
Gain 300
Holdover Relief (300)
Restriction to Holdover Relief:
Actual proceeds * 212
Less qualifying base cost / deductions (200)
Net restriction to holdover relief 12
Capital Gain Arising 12
Less: Annual Exemption * (12)
Ringo’s Chargeable Gain   Nil

* If Ringo will separately use his Annual CGT Exemption, these figures may need to be adjusted.

Ringo will have generated a DLA balance of £212k, free from Capital Gains Tax. The base cost for Thomas Ltd will also be £212k (i.e. the market value of £500k less the net holdover relief claimed of £288k). The actual calculation should factor in all acquisition, disposal and enhancement costs available to Ringo, which may further increase the potential DLA balance created.

With all holdover relief claims under s165 TCGA 1992, the rules in Part 2 Sch. 7 TCGA 1992 must be considered. These rules will reduce the gain that can be held over if the property was not always used for a qualifying purpose during Ringo’s ownership.

Additional Points to Note


As a transfer to a connected company, Thomas Ltd will pay SDLT on the market value of the property – s53 FA 2003. This will be the case regardless of whether Section 162 or Section 165 is adopted.

Based on the market value of £500k, and the current non-residential rates, this SDLT would be £14.5k.


A transfer at undervalue to a company is a disposition for IHT purposes. As Ringo owns 100% of the company shares, there is no loss to his estate under s3 IHTA 1984 and so no transfer of value.


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