Incorporation relief in 2026: New rules businesses need to know

If you’re a sole trader or thinking about transferring your business into a company, understanding incorporation relief is essential. This relief can defer your Capital Gains Tax (CGT), giving you more flexibility to grow your business without an immediate corporate tax hit. But from 6 April 2026, the rules are changing, so it’s important to know how to claim and what documentation is required.

What is incorporation relief and how does it work? 

Section 162 incorporation relief lets businesses defer CGT when they transfer a business into a company in exchange for shares. Individuals or partners don’t pay tax immediately; instead, any gain is rolled into the base cost of the shares they receive. This process gives businesses the opportunity to reinvest in the company without being immediately taxed on the increase in business value.

Partial incorporation relief  

Sometimes, the consideration for a business isn’t entirely in shares, but also in cash. In these circumstances, only the part of the gain related to shares is deferred. 

Incorporation relief: Properties 

Many businesses include property as part of their assets, which can complicate incorporation relief. While the rules apply broadly, special care is needed for property-related assets: 

• The value of a property/properties must be included in CGT calculations
• Certain types of property may not qualify fully for relief

Professional guidance ensures that, whatever the consideration, the transfer is structured correctly and all assets are appropriately valued.

Conditions to qualify for incorporation relief

Not every business transfer qualifies for relief. To claim s162 incorporation relief, certain conditions must be met:

• The business must be a genuine trading business, not just a collection of assets
• The business must be transferred as a going concern
• All assets (except cash) should be included in the transfer
• The consideration for the transfer must include shares

Meeting these conditions ensures that HMRC accepts the CGT deferral.

CGT incorporation relief changes in 2026

The biggest change from April 2026 is that incorporation relief is no longer automatic. Previously, relief applied automatically if you met the rules. From April a formal claim for Incorporation Relief will need to be made via the Self-Assessment tax return for the year in which the transfer occurs. 

Supporting information will also be required, including a detailed valuation of all transferred assets, a summary of business activities, and CGT computation showing how the gain is calculated and deferred.

How will this affect businesses? 

CGT incorporation relief changes will affect businesses in several ways. Missed claims mean the CGT on your gain becomes immediately payable. This means that HMRC is likely to scrutinise claims more closely, emphasising the importance of proper documentation. 

As a result, electing out of incorporation relief may be better for some businesses, particularly if your gains fall within the annual exemption or other relief schemes. 

These CGT incorporation relief changes make professional advice more valuable than ever. Understanding how incorporation relief is treated can prevent unexpected tax bills and ensure maximum benefit from the deferral.

Key takeaways

• Incorporation relief defers CGT when transferring a business into a company. 
  Gains are rolled into the base cost of the shares received, rather than taxed immediately.
• From 6 April 2026, relief must be actively claimed. 
  Businesses will need to make a formal claim via Self Assessment and provide supporting documentation, or risk, paying CGT immediately.
• Strict conditions apply. 
  The business must be a genuine trading business transferred as a going concern, with all assets (except cash) included and shares forming part of the consideration.
• Professional advice is crucial. 
  Expert guidance ensures proper structuring, accurate valuations, and compliance.

Why work with Rayner Essex for incorporation relief 

Navigating incorporation relief can be complex, especially under the new claim-based system. At Rayner Essex, we help business owners:

• Calculate deferred CGT accurately
• Prepare Self Assessment claims with the correct supporting documentation
• Advise on partial relief and property considerations
• Plan ahead for Section 162 incorporation relief under the new rules

Our expertise can help you to maximise the benefits of incorporation relief, while staying fully compliant with HMRC requirements.

If you’re considering transferring your business into a company or want to understand the impact of incorporation relief changes, it’s essential to plan ahead. Get in touch with our corporate tax team to discuss your incorporation relief options today.