Disincorporation relief will not be extended beyond its 31 March 2018 expiry date.
The relief was introduced in April 2013 in a bid to remove the tax burdens when small business owners want to change from a limited company to a sole trader or partnership.
It allows companies to transfer certain assets, such as land, building and goodwill, to shareholders without incurring a corporation tax charge.
However, the relief has not been widely used in the three years after its launch.
Until March 2016, fewer than 50 businesses made claims for disincorporation relief – despite around 610,000 firms being eligible to access the relief.
The Chartered Institute of Taxation (CIOT) attributes the lack of uptake in part to the relief’s £100,000 limit.
John Cullinane, tax policy director at the CIOT, said:
“The government should have searched for a solution that addresses the differences between the taxation of different types of income, and between incorporated and unincorporated businesses.
“A broader relief with some anti-avoidance provisions might play a sensible part in a more rational overall system which tries to reverse the current tax incentive for businesses to incorporate.”
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