The new disincorporation tax relief removes the corporation tax problem when you transfer your business to a partnership or sole trader, but there are severe income tax implications.

Making this change could trigger a corporation tax bill. The Office of Tax Simplification decided this was unfair to business owners and introduced the disincorporation tax relief scheme to close the trap from 1 April 2013.

This applies when a company transfers an asset to a shareholder as this is counted as sold at market value. If that is more than the company paid for it, corporation tax applies.

Vincents UK TaxDisincorporation relief only applies to the transfer of land, buildings and goodwill. For example, if a company purchased some land for £50,000 five years ago and it is worth £70,000 when the business transfers it to you today, the £20,000 difference is subject to charges.

But, if this is part of a plan to transfer the whole business to you, then disincorporation relief applies which can stop the charges from arising.

What about expensive machinery and equipment? Will these trigger tax bills when they’re transferred? Happily, there are many tried and tested tax reliefs which will apply to these.

Be aware that disincorporation relief only defers the tax, so if the land is sold in a few years at £90,000 there will be a charge on the difference. However, other deductions and exemptions could make disincorporation worth while.