Comparison · Capital Gains Tax · 2026
Incorporation Relief vs Gift Holdover Relief UK 2026: Which CGT Deferral?
When a sole trader or partnership moves a business into a limited company, the transfer can trigger a capital gain on goodwill and other assets. Two reliefs can defer that gain: incorporation relief under section 162 and gift holdover relief under section 165. They achieve a similar result by different routes. This guide compares them using 2026/27 CGT figures and explains when each applies.
TL;DR -- 30-Second Summary
- • Incorporation relief (s162): automatic; needs the whole business transferred as a going concern
- • Gift holdover relief (s165): must be claimed jointly; can apply to selected qualifying assets
- • Both defer, not cancel: the gain reduces the base cost of shares (s162) or the asset (s165)
- • CGT 2026/27: 18% basic band, 24% higher; GBP 3,000 annual exempt amount
- • Watch SDLT: neither relief removes stamp duty on transferring property to a connected company
Side-by-Side Comparison
| Feature | Incorporation Relief (s162) | Gift Holdover Relief (s165) |
|---|---|---|
| How it applies | Automatic (can elect out) | Joint claim required |
| What must transfer | Whole business as a going concern | Selected qualifying business assets |
| Consideration | Wholly or partly in shares | Gift or sale at undervalue |
| Gain rolls into | Base cost of the shares | Base cost of the asset for the company |
| Flexibility | Low -- all or nothing on the business | High -- pick which assets |
| Best for | Full incorporation of a trade | Moving specific assets only |
How Incorporation Relief Works
Incorporation relief under section 162 of TCGA 1992 applies automatically when a sole trader or partnership transfers its whole business as a going concern to a company, with all assets other than cash, in exchange wholly or partly for shares. The chargeable gain that would otherwise arise on the business assets, including goodwill, is deferred.
The deferred gain is deducted from the base cost of the shares the individual receives. No CGT is payable at incorporation to the extent the consideration is shares. When the individual later sells the shares, the gain that was rolled in comes back into charge. If part of the consideration is taken as cash or credited to a loan account, the relief is restricted in proportion to the non-share consideration.
Because it is automatic, you do not need to claim it, but you can elect out within a time limit if it is not beneficial, for example where you want to use the annual exempt amount or crystallise a gain that qualifies for Business Asset Disposal Relief.
How Gift Holdover Relief Works
Gift holdover relief under section 165 defers the gain when you give away, or sell at less than market value, qualifying business assets. The held-over gain reduces the recipient's base cost, so they take on the latent gain. With incorporation, the company is the recipient, and the individual and company make a joint claim.
The major practical advantage over incorporation relief is flexibility. You do not have to transfer the whole business. You can move selected qualifying assets, such as goodwill or trade fixtures, into the company while keeping other assets, such as property, in your own name. This is useful where holding property personally and leasing it to the company is more tax-efficient.
Holdover relief does not apply to every asset. Standard residential investment property generally does not qualify, and the rules around what counts as a business asset are detailed, so it is important to confirm eligibility before relying on it.
Worked Example: Incorporating a Trade
A sole trader incorporates a consultancy business worth GBP 400,000, with a chargeable gain of GBP 250,000 sitting mainly in goodwill. They take all of the consideration in shares.
| Item | Amount |
|---|---|
| Market value of business | GBP 400,000 |
| Chargeable gain on transfer | GBP 250,000 |
| Gain deferred (incorporation relief) | GBP 250,000 |
| New base cost of shares | GBP 150,000 |
| CGT payable now | GBP 0 |
No CGT is due at incorporation. When the shares are later sold for, say, GBP 500,000, the gain is GBP 350,000 (GBP 500,000 less the GBP 150,000 base cost), taxed at 18% or 24% in 2026/27 after the GBP 3,000 annual exempt amount. The gain is deferred, not removed.
When Each Relief Wins
Incorporation relief wins when:
- You are transferring the entire trade as a going concern
- You are happy to take consideration in shares
- You want relief to apply automatically without a separate claim
Gift holdover relief wins when:
- You want to move only selected assets into the company
- You plan to keep property personally and lease it to the company
- You need control over which gains are deferred and which are crystallised