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Incorporation Relief Is Changing from April 2026: What Business Owners Need to Know
2 April 2026
Accounting & Compliance, Ambitious Startups, Building a Business, Reducing Tax, Structuring a Business
In the 2025 budget, the government announced important changes to the way incorporation relief is claimed.
While the relief itself isn’t being removed, how you access it is changing, and that has practical implications for anyone considering incorporating their business.
These changes will apply to business transfers taking place on or after 6 April 2026.
What Is Incorporation Relief?
When a sole trader or partnership transfers their business to a limited company, this is treated as a disposal for Capital Gains Tax purposes.
This means a capital gain may arise.
Incorporation relief allows that gain to be deferred, rather than paid immediately.
It works by “rolling over” the gain into the value of shares received in the new company.
However, there’s an important condition:
The relief only applies to the portion of the business transferred in exchange for shares.
Any part of the consideration received as cash is still subject to CGT at the time of incorporation.
A Simple Example
Let’s say:
- A business is incorporated with a market value of £100,000
- The total gain (without relief) would be £60,000
- The individual receives:
- 1,000 shares (worth £80,000)
- £20,000 in cash
In this case:
- 80% of the consideration is in shares
- Therefore, 80% of the gain (£48,000) can be deferred
- The remaining £12,000 is taxable immediately
The deferred gain reduces the base cost of the shares:
- Share value: £80,000
- Less rolled-over gain: £48,000
- Resulting base cost: £32,000
This means the tax is postponed until the shares are eventually sold.
How the Rules Work (Before April 2026)
Under the current rules, incorporation relief is automatic.
If you qualify, the relief is applied by default — there’s nothing you need to do.
However, you can choose to opt out by making an election if it’s more tax-efficient not to defer the gain.
What’s Changing from 6 April 2026?
From 6 April 2026, incorporation relief will no longer be automatic.
Instead, you will need to actively claim the relief in your tax return.
Key changes:
- A formal claim must be made
- The claim is submitted through your self-assessment tax return
- There is a strict deadline
The deadline:
You must claim by the first anniversary of 31 January following the end of the tax year in which the incorporation took place.
What Information Will Be Required?
When making a claim, you’ll need to provide:
- Brief details of the transaction
- Supporting tax computations
- The type of business transferred
HM Revenue & Customs may request further information if needed.
No Claim? HMRC assume you’re opting out then
Given that incorporation relief will not be automatic, for anyone who doesn’t make the claim HMRC will assume they wish to opt-out.
It’s therefore paramount that anyone looking to incorporate and make use of this relief is aware of their obligations, otherwise they could face an immediate unforeseen tax liability, rather than it being deferred as they intended.
Why Is This Change Being Introduced?
According to the government, the move is designed to:
- Improve the quality of data collected by HM Revenue & Customs
- Allow better analysis of how the relief is used
- Help target compliance activity and reduce avoidance
While the mechanics of the relief remain the same, the administrative burden will increase.
What This Means for Business Owners
If you’re considering incorporating your business, timing and planning will become even more important.
Before April 2026:
- Relief is automatic
- You have flexibility to opt out
From April 2026:
- Relief must be actively claimed
- Deadlines must be met
- Opt-out is automatic if relief not claimed
Missing a claim could result in unexpected tax liabilities, so professional advice will be key.
How We Can Help
Incorporating a business is a significant decision — and changes like this make it even more important to get the structure right from the outset.
We support business owners with:
- Incorporation planning
- Tax-efficient structuring
- Capital gains tax advice
- Compliance with new reporting requirements
Getting in Touch with us
If you’re considering incorporating your business, or want to understand how these changes could affect you book a discovery meeting with our team or call us today on 01634 731 390.
We can help you plan ahead, avoid surprises, and make informed decisions for the future.
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The content in this blog is correct as at 26th March 2026. See terms and conditions.
