Incorporation relief now has to be claimed: what changed in April 2026

Until April 2026, incorporation relief happened by itself. If you transferred a property business to a company in exchange for shares and met the conditions, the gain rolled into your shares automatically. You didn't have to tell HMRC you were relying on it.

That has changed. For transfers on or after 6 April 2026, incorporation relief must be claimed. The change was made by section 39 of the Finance Act 2026. This article explains what you now have to do, by when, and why the claim puts more weight than ever on the business test.

What incorporation relief does

Section 162 TCGA 1992 applies where a person who isn't a company transfers a business to a company as a going concern, together with all its assets (or all except cash), wholly or partly in exchange for shares.

Where it applies, the gain on the properties isn't taxed at the time. It is deducted from the base cost of the new shares. The company takes the properties at market value. If part of the payment isn't in shares, for example a loan account, relief is reduced in proportion.

Under HMRC's concession D32, mortgages and other business liabilities taken over by the company aren't treated as payment, so they don't reduce the relief.

What changed on 6 April 2026

The deadline

The claim must be made by the first anniversary of the 31 January following the tax year in which the business was transferred.

HMRC expects most claims to be made in or with the tax return for the year of transfer. We recommend doing exactly that. Leaving it to the last date adds risk and gains nothing.

What the claim contains

HMRC's Capital Gains Manual (CG65735) sets out what it wants. In summary:

• who is transferring the business: individual, trustee, partnership or LLP;
• the business and the company receiving it;
• which asset disposals the claim covers;
• the computation: values of chargeable and other assets, the shares received, any non-share consideration, and the relief claimed.

Why HMRC made the change

HMRC's stated aim is better information about who uses the relief, and better targeting of compliance work at avoidance. In plain terms, every property incorporation will now be on HMRC's radar.

The business test is now front and centre

The claim makes the incorporation visible. The question HMRC is most likely to ask is whether there was a business to transfer.

A business is wider than a trade, but holding investment property isn't automatically one. HMRC applies the indicators from Ramsay v HMRC [2013] UKUT 226 (TCC): is the activity a serious undertaking earnestly pursued, with reasonable continuity, substantial turnover, run on sound business principles, and of a kind commonly carried on for profit?

HMRC's manual says it accepts the test is met where the owner spends 20 hours or more a week personally on the letting activities. Below that, it looks at the facts.

There's no advance clearance. Section 162 has no statutory clearance, and HMRC's non-statutory service won't rule on whether activities amount to a business. So evidence matters.

Evidence checklist

Before the transfer, assemble:

• a log of the hours you (and any co-owners) spend each week, and on what;
• tenant-finding, viewings, referencing and tenancy management you do yourself;
• maintenance you arrange and supervise, with supplier records;
• rent collection, arrears handling and compliance work (safety certificates, deposits, licensing);
• the scale of the portfolio and rental income over several years;
• evidence of a business approach: bank accounts, budgets, a business plan, any staff;
• the role of letting agents, and what you still do personally.

A portfolio run day to day by a fully managing agent, with the owner largely hands-off, is the classic case where relief is doubtful.

Other conditions to get right

• All the assets. Transferring only some properties won't meet the test. Cash can be kept back.
• Going concern. The lettings must continue in the company, not stop and restart.
• Shares. Relief only covers the part of the value paid in shares.
• Personal liabilities. If the company takes on a debt that isn't a business liability, that counts as non-share payment.
• SDLT is separate. Incorporation relief is a capital gains relief. SDLT is still charged on market value when you transfer to a connected company, unless a separate relief applies. See SDLT for property investors.

Choosing not to claim

The old section 162A election let you opt out of relief. It has gone, because not claiming now does the same job. Not claiming can make sense where the gain is small, or where a higher base cost in the shares is worth more than the deferral. That choice should be modelled, not assumed.

Partnerships and trustees

Each partner makes their own claim, based on their share. Trustees can also claim. In both cases the business test applies to the activity as a whole, and the claims should match the company's share register and the computation.

An example timeline

This is an illustration, not a client case. A couple who run their lettings full-time decide in summer 2026 to incorporate their portfolio.

• July to September 2026: we review the business test with them, build an evidence file and model CGT, SDLT and the annual tax position on 2027/28 rates. Their broker arranges company lending.
• November 2026: the company is formed. Valuations are obtained for each property as at the expected transfer date.
• January 2027: the transfer completes. SDLT returns are filed and the tax paid within 14 days.
• After 5 April 2027: the computation is finalised with the completion values and the company's share register.
• By 31 January 2028: each spouse files their 2026/27 tax return, including their own incorporation relief claim. The legal deadline is 31 January 2029, but there's no advantage in waiting.

The couple then keep the evidence file for as long as HMRC could open an enquiry into either return.

What this means in practice

1. Test the business conditions before the transfer, not after.
2. Document the evidence while it is current.
3. Prepare the computation at completion, including market values.
4. Make the claim with the tax return for the year of transfer.
5. Keep the file for the full enquiry period.

We prepare the claim as part of a fixed-fee incorporation project and coordinate with your accountant, solicitor and broker. Every plan is reviewed by a Chartered Tax Adviser, and we respond the same working day. If you're weighing incorporation at all, start with our worked example.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.