Home / Glossary / Incorporation Relief
What is Incorporation Relief?
Last verified 23 October 2026
Incorporation Relief lets a sole trader or partnership defer Capital Gains Tax when they transfer their business to a company in exchange for shares. Instead of paying tax now, the gain reduces the base cost of the shares and is taxed when you later sell them.
Why it matters to landlords
To qualify you must transfer the business and all its assets, except cash, in return for shares. You get the relief automatically if you are eligible, and you can choose not to have it. It only covers the part of the business exchanged for shares, so any part paid in cash is taxed straight away.
For landlords the key question is whether the letting is a business rather than just holding investments. HMRC's manual, following the Ramsay case, says the test is the overall degree of activity. It treats 20 hours or more a week of business type work as a strong indicator, with lower hours judged case by case. Get professional advice before moving a portfolio into a company.
Example
A landlord transfers a letting business to a company for shares worth £500,000, with a £200,000 gain on the properties. No Capital Gains Tax is due now. The shares have a base cost of £300,000, so the gain is taxed when the shares are sold.
Section 24 explained for landlords →
Related terms
- Limited company buy-to-let
- Capital Gains Tax (CGT)
- Section 24
- Special purpose vehicle (SPV)
- Stamp Duty Land Tax (SDLT)