Disincorporation Relief Explained: Moving From a Limited Company Back to Sole Trader (2026/27)
How disincorporation relief works when transferring a business from a limited company back to sole trader or partnership status, what qualifies, and why the relief is now rarely available.
What the Relief Was Designed to Do
Introduced from 1 April 2013, disincorporation relief was a targeted measure aimed at small companies wanting to move a business back out of a limited company structure and into a sole trader or partnership, without a Corporation Tax charge on the gain arising from transferring goodwill and any interest in land used in the business to the shareholders who would then continue running it directly. It was a narrow, specific relief — it didn't apply to every type of business asset, and it came with conditions around the value of the qualifying assets being transferred.
Corporation Tax Calculator
Calculate Corporation Tax for UK limited companies for 2025/26.
Open Corporation Tax calculatorWhy It No Longer Applies
The relief was time-limited by design and expired for disincorporations taking place after 31 March 2018. For anyone considering moving a business out of a limited company in 2026/27, this matters significantly: the specific mechanism that once allowed goodwill and property to move to shareholders without a Corporation Tax charge is no longer in force, so any current guidance or older articles referencing disincorporation relief as an active option should be treated with caution and checked directly against gov.uk before being relied on.
The Tax Cost of Disincorporating Today
Without the relief, moving chargeable assets like goodwill or a business property out of a company and into a shareholder's personal ownership is generally treated as a disposal at market value, which can crystallise a taxable gain inside the company subject to Corporation Tax. Separately, the shareholder receiving value out of the company may also face a tax charge on that value, depending on how the transfer is structured — potentially income tax treatment in some circumstances, or a distribution taxed as a dividend in others. This two-layer exposure is exactly what the now-expired relief was designed to avoid.
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Open Capital Gains Tax calculatorWhy Someone Might Still Consider It
Despite the higher tax cost, business owners sometimes still want to move away from a limited company structure — perhaps the administrative burden of company filings and accounts no longer feels proportionate to a smaller-scale business, or personal circumstances have changed. This is a legitimate business decision, but given the absence of disincorporation relief, it now needs to be weighed carefully against the potential Corporation Tax and shareholder-level tax cost, rather than assumed to be a straightforward, tax-neutral switch.
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorChecklist
- Confirm disincorporation relief is not available for any transfer happening now — it expired 31 March 2018
- Get a professional valuation of goodwill and any property before considering a transfer out of the company
- Model both the potential company-level Corporation Tax charge and any shareholder-level tax charge
- Get specialist accountancy advice before disincorporating, given the higher tax cost involved today
This article is general information, not financial or tax advice. Check current HMRC guidance directly, since disincorporation relief itself has expired and rules in this area can change.
Frequently asked questions
What is disincorporation relief?
Disincorporation relief was a statutory relief, introduced in 2013, that let a small company transfer certain business assets — mainly goodwill and interests in land — to its shareholders (who then continue the business as a sole trader or partnership) without triggering a Corporation Tax charge on the gain in the company at the point of transfer.
Is disincorporation relief still available in 2026/27?
The relief as originally legislated expired for disincorporations after 31 March 2018, so it is not generally available for transfers happening now. Anyone considering moving a business out of a limited company structure should check current HMRC guidance directly, since the specific relief that existed for several years is no longer in force.
Without disincorporation relief, what happens to gains when a company's assets are transferred to shareholders?
Without the relief, a transfer of chargeable assets like goodwill or property out of a company to its shareholders is treated as a disposal at market value for Corporation Tax purposes, potentially creating a taxable gain in the company, on top of any tax due on the shareholders receiving value out of the company.
Why might a business owner still want to disincorporate?
Reasons vary — winding down administrative burden and filing requirements, a change in circumstances that makes sole trader status simpler, or a strategic decision that the ongoing costs and complexity of running a limited company are no longer worthwhile relative to the business's size and income.
What should someone considering disincorporation do given the relief has expired?
Get specific accountancy advice before disincorporating, since without the relief, moving assets out of a company can trigger both a Corporation Tax charge in the company and a further tax charge on the shareholder receiving the value, potentially making disincorporation considerably more expensive than it would have been while the relief was in force.
Try the calculators
Corporation Tax Calculator
Calculate Corporation Tax for UK limited companies for 2025/26.
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Related reading
ATED 2026: Annual Tax on Enveloped Dwellings for Company-Owned Property
ATED 2026/27 rates for companies owning UK residential property over £500,000: charges from £4,150 to £269,450, key reliefs for rental/development/commerce, and 30-day return filing rules.
Incorporation Relief: Converting a Sole Trader to a Limited Company 2026/27
How Incorporation Relief automatically defers CGT when a sole trader transfers their business into a limited company for shares -- conditions, BADR interaction, and a worked example for 2026/27.
Capital Allowances on an Electric Van for Your Business (2026/27)
How capital allowances work when a self-employed person or company buys an electric van in 2026/27, including the Annual Investment Allowance, full expensing for companies, and the benefit-in-kind position for employees.