What condition must an unincorporated business meet for incorporation relief?

In the context of incorporation relief, it is essential that the unincorporated business is operational at the time of sale. This operational status means that the business is actively engaged in trading activities, which is a critical condition for relief on any capital gains that may arise from the transfer of assets when the business is converted into a company.

The rationale behind this requirement is to ensure that incorporation relief applies only to genuine business activities that are being transferred to a corporate structure. If the business isn't operational at the time of sale, it raises questions about the viability and value of the assets being transferred, which can potentially distort the tax relief available.

For incorporation relief to be effective, the business should ideally be in the process of conducting its usual activities, as this reflects the business's ongoing nature and aligns with the intention behind tax reliefs designed to support the continuity of business operations during transitions like incorporation. This operational status is a safeguard to prevent misuse of relief provisions for businesses that are not actively engaging in trade.