ACCA Advanced Taxation (ATX) Practice Exam

What must happen for a transfer to qualify for incorporation relief?

1. It must involve cash only

2. All assets (except cash) must be transferred

3. The business must be valued at over £1,000

4. The business must be fully sold)

The correct answer is: All assets (except cash) must be transferred

For a transfer to qualify for incorporation relief, all assets, except cash, must be transferred to the newly incorporated entity. Incorporation relief allows business owners to transfer their business into a company without facing immediate capital gains tax on the transfer of business assets. The key requirement is that the transfer must include all relevant business assets to ensure that the entire trading operation is moved into the new corporate structure, making it eligible for the relief. Other responses like involving cash only, a minimum business valuation, or requiring the business to be fully sold do not align with the requirements for incorporation relief. For instance, including cash in the transfer can disqualify the relief because cash is treated differently in tax regulations. Similarly, there is no specific minimum valuation threshold for the business to qualify for incorporation relief, and a full sale is not a requirement for the relief—rather, the continuation of the business operation is essential. Thus, the structure of the asset transfer is crucial to determine qualification for the relief.